Food security in a food abundant world an individual country perspective

Thor and Octavio Valdez Lafarga 1 Introduction: historical development of the CANAMEX 2 Canadian agricultural exports and food safety in the 3 Mexico: exports, food safety, and food secu

FOOD SECURITY IN A FOOD ABUNDANT WORLD

An Individual Country Perspective

FRONTIERS OF ECONOMICS AND GLOBALIZATION

16

Series Editors:

HAMID BELADIUniversity of Texas at San Antonio, USA

E KWAN CHOIIowa State University, USA

FRONTIERS OF ECONOMICS AND GLOBALIZATION

P Lynn KennedyLouisiana State University, Baton Rouge, LA, USA

Troy G SchmitzArizona State University, Mesa, AZ, USA

United Kingdom
North America
Japan

India
Malaysia
China

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1 FOOD SECURITY AND THE ROLE OF FOOD STORAGE 1Andrew Schmitz and P Lynn Kennedy

11.1 The Great Famine (1315
1317) and Black Death

2 FOOD SECURITY, SUBSISTENCE AGRICULTURE,

AND WORKING’S MODEL

19Charles B Moss, James F Oehmke and Alexandre Lyambabaje

3 Analysis of food-shortage risks to individuals 35

4 Aggregation and alternative measures of food-shortage risks 38

6.2 Minimizing cost subject to average risk constraint 436.3 Minimizing cost to reduce risk for vulnerable populations 43

8 Derivation of optimal food distribution policies 47

4 THE HIGH VALUE TO SOCIETY OF MODERN

AGRICULTURE: GLOBAL FOOD SECURITY,

CLIMATE PROTECTION, AND PRESERVATION OF

THE ENVIRONMENT
EVIDENCE FROM THE

EUROPEAN UNION

55

Harald von Witzke and Steffen Noleppa

3.1 Now a major net importer in food and agriculture and

3.2 Diminishing EU yield growth contributes to global warming,loss of natural habitats, and biodiversity 603.3 The benefits of EU productivity growth 603.4 Social rate of return to generating productivity growth:

5 OFF-FARM LABOR ALLOCATION, INCOME, AND FOODCONSUMPTION AMONG RURAL FARM HOUSEHOLDS

6 THE STATUS AND CHALLENGES OF FOOD SECURITY

IN EUROPE AND CENTRAL ASIA

85Kateryna G Schroeder and William H Meyers

2 Malnutrition and poverty indicators in the ECA region 86

3 Focus on the most food insecure ECA sub-region 903.1 Food availability (much improved, while some concerns

3.2 Access to food (uneven progress across sub-region) 943.3 Food utilization (nutrient-deficient and unbalanced

3.4 Food stability (increased fluctuations in food supply

3.5 Diversity of policies to alleviate food insecurity in the

8 SUGAR, FAT, OR PROTEIN: ARE ALL FOOD INSECUREHOUSEHOLDS EATING THE SAME? THE CASE OF

SMALL RICE PRODUCERS IN PERU

115

Pilar Useche and Jennifer Twyman

9 FOOD SAFETY AND FOOD SECURITY IN THE

CANAMEX TRADE CORRIDOR

133Eric P Thor and Octavio Valdez Lafarga

1 Introduction: historical development of the CANAMEX

2 Canadian agricultural exports and food safety in the

3 Mexico: exports, food safety, and food security 137

4 Food Safety and Modernization Act: technological advances

5 Food safety and the country-of-origin labeling debate 140

7 Food safety challenges within the CANAMEX Trade Corridor 141

8 Potential research and innovation avenues for food safety andfood security derived from the development of the CANAMEX

3 Food security indicators and econometric models 148

5.3 Marginal effects of remittance on food security categories 154

11 INFORMAL “GANYU” LABOR SUPPLY, AND FOOD

SECURITY: THE CASE OF MALAWI

159Isaac Sitienei, Ashok K Mishra and Aditya R Khanal

5.1 Determinants of ganyu labor force participation 167

12 THE POLITICAL ECONOMY OF EXPORT

RESTRICTIONS: THE CASE OF VIETNAM AND INDIA

177Kathy Baylis, Murray E Fulton and Travis Reynolds

2 Food price increases and the policy environment:

3.1 Food security: keeping prices from rising 184

13 FOOD SECURITY POLICY AT THE EXTREME OF

THE WATER-ENERGY-FOOD NEXUS: THE KINGDOM

OF SAUDI ARABIA

199

Hannah Pieters and Johan Swinnen

2 The challenges for future food security in KSA 201

2.2 The water-energy-food nexus and the transformation

ix Contents

2.3 Water and energy 2032.4 Water scarcity and food policy reforms 204

Bart Minten, Thomas Reardon, Sunipa Das Gupta,

Dinghuan Hu and K A S Murshid

4 Structure of the value chain and storage 230

We would like to thank all of those who contributed to this volumeentitled Food Security in a Food Abundant World: An Individual CountryPerspective This work was made possible through funding provided bythe Ben Hill Griffin, Jr Endowment, and by the National Institute forFood and Agriculture (USDA Multistate Research Project, S-1062) Weespecially would like to thank Carol Fountain for managing our overallproject on food security We would also like to thank Carol Fountain,

H Carole Schmitz, Carolyn Bradley, Michael Rowin, and Dwayne J.Haynes for their editorial assistance Without their tireless effort, thisproject would not have been possible

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LIST OF CONTRIBUTORS

Carl Anfinson Department of Agribusiness and Applied

Economics, North Dakota State University,Fargo, ND, USA

Junfei Bai College of Economics and Management,

China Agricultural University, Beijing, ChinaKathy Baylis Department of Agricultural and Consumer

Economics, University of Illinois atUrbana-Champaign, Champaign, IL, USAMurray E Fulton Johnson-Shoyama Graduate School of Public

Policy, University of Saskatchewan,Saskatoon, Saskatchewan, CanadaSunipa Das Gupta International Food Policy Research Institute,

Accra, GhanaDinghuan Hu Institute of Agricultural Economics, Chinese

Academy of Agricultural Sciences, Beijing,China

Yanhong Jin Department of Agricultural, Food and

Resource Economics, Rutgers, the StateUniversity of New Jersey, New Brunswick,

NJ, USADavid R Just Charles H Dyson School of Applied

Economics and Management, CornellUniversity, Ithaca, NY, USA

P Lynn Kennedy Department of Agricultural Economics and

Agribusiness, Louisiana State University,Baton Rouge, LA, USA

Aditya R Khanal Department of Agricultural and

Environmental Sciences, Tennessee StateUniversity, Nashville, TN, USA

Alexandre Lyambabaje School of Public Health, National University

of Rwanda, Kigali, Rwanda

William H Meyers Food and Agricultural Policy Research

Institute, University of Missouri, Columbia,

MO, USABart Minten International Food Policy Research Institute,

Addis Ababa, EthiopiaAshok K Mishra Morrison School of Agribusiness, W.P Carey

School of Business, Arizona State University,Tempe, AZ, USA

Charles B Moss Food and Resource Economics Department,

University of Florida, Gainesville, FL, USA

K A S Murshid Bangladesh Institute of Development Students,

Dhaka, BangladeshSteffen Noleppa Humboldt Forum for Food and Agriculture

Resarch GmbH, Berlin, GermanyJames F Oehmke Department of Agricultural Economics,

Michigan State University, East Lansing, MI,USA

Gulcan Onel Food and Resource Economics Department,

University of Florida, Gainesville, FL, USAKrishna P Paudel Department of Agricultural Economics and

Agribusiness, Louisiana State University(LSU); LSU Agricultural Center, BatonRouge, LA, USA

Hannah Pieters LICOS Centre for Institutions and Economic

Performance, KU Leuven, Leuven, BelgiumThomas Reardon Department of Agriculture, Food and

Resource Economics, Michigan StateUniversity, East Lansing, MI, USAMadhav Regmi Department of Agricultural Economics,

Kansas State University, Manhattan, KS, USATravis Reynolds Johnson-Shoyama Graduate School of Public

Policy, University of Saskatchewan,Saskatoon, Saskatchewan, CanadaAndrew Schmitz Food and Resource Economics Department,

University of Florida, Gainesville, FL, USAKateryna G Schroeder Food and Agricultural Policy Research

Institute, University of Missouri, Columbia,

MO, USA

James L Seale, Jr Food and Resource Economics Department,

University of Florida, Gainesville, FL, USAAyuba Seidu Food and Resource Economics Department,

University of Florida, Gainesville, FL, USAIsaac Sitienei Department of Agricultural Economics and

Agribusiness, Louisiana State University,Baton Rouge, LA, USA

Jeffrey M Swigert College of Human Ecology, Cornell

University, Ithaca, NY, USAJohan Swinnen LICOS Centre for Institutions and Economic

Performance, KU Leuven, Leuven, Belgium;Centre for Food Security and the

Environment, Stanford University, Stanford,

CA, USAEric P Thor W.P Carey School of Business, Arizona State

University, Tempe, AZ, USAJennifer Twyman International Center for Tropical Agriculture

(CIAT-CGIAR), Cali, ColombiaPilar Useche Food and Resource Economics Department &

Center for Latin American Studies University

of Florida, Gainesville, FL, USAOctavio Valdez Lafarga W.P Carey School of Business, Arizona State

University, Tempe, AZ, USAHarald von Witzke Humboldt Forum for Food and Agriculture,

Berlin, GermanyThomas I Wahl Department of Agribusiness and Applied

Economics, North Dakota State University,Fargo, ND, USA

David Zilberman Department of Agricultural and Resource

Economics, University of California Berkeley,Berkeley, CA, USA

xv List of Contributors

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Food Security and the Role of Food StorageAndrew Schmitzaand P Lynn Kennedyb

a Food and Resource Economics Department, University of Florida, PO Box 110240,

Gainesville, FL, USA, E-mail addres: aschmitz@ufl.edu

b Department of Agricultural Economics and Agribusiness, Louisiana State University, 6261 Morgan Bend Drive, Baton Rouge, LA, USA, E-mail addres: lkennedy@agcener.lsu.edu

Abstract

Purpose
We discuss food security within the context of welfare nomics We review models of commodity price stabilization broughtabout by government storage, and/or the private sector We use data onthe stocks of major commodities to discuss the implications of storagemodels on food security

eco-Methodology/approach
The impact of storage on food security is cussed within the context of welfare economics

dis-Findings
Storage is not necessarily a solution to solving long-termworld food problems Also, at times in history, countries such as theUnited States have accumulated large stocks of commodities such aswheat, which turned out to be a costly policy

Social implications
While food insecurity is a major issue worldwide,the solution does not entirely lie in governments being heavily involved inmanaging and owning food stocks The private sector manages stocks as

a part of commercial transactions The government’s role is to providefood from stockholdings in times of emergency situations

Keywords: Food security, food storage, export enhancement program

Copyright © 2016 by Emerald Group Publishing Limited

All rights reserved

beginning in 2005 The intensity of the focus on storage fluctuatesdepending on increases in basic commodity prices For example, pricesskyrocketed in the 1970s and then in 2008 and 2009 when commodityprices soared During these periods, people gravitated toward the argu-ment that storage could have eliminated many of the food price spikes.Unfortunately, the economic theory of storage says little about the impact

of price spikes and storage on poor people and, hence, food security Thetheory of storage deals with the gainers and losers from storage (which isundertaken by both the government and private sectors) through theimpact that storage has on price instability and risk

In this chapter, we discuss the link between food security and foodstorage We review models of commodity price stabilization broughtabout by government storage, and/or the private sector We use data onstocks of major commodities to discuss the implications of storagemodels Storage is not necessarily a solution to solving world food pro-blems At times in history, countries such as the United States have accu-mulated large stocks of commodities such as wheat, which turned out to

be a costly policy One should guard with caution statements that term food security can be managed through the physical storage ofcommodities

long-2 Model: role of storage1

The early literature focused on storage policies as a means to bring aboutprice and income stability (Bieri & Schmitz, 1973, 1974; Massell, 1970;

general approach is discussed with reference to Figure 1 Consumerdemand is D and the stochastic supply is S0and S″ each of which occurswith a probability equal to one-half Thus, equilibrium prices are P1 and

P2, respectively We assume that prices are stabilized at Pμ by means of abuffer-stock authority that buys excess supply Qð S 0− QμÞ when S0 occurs,and sells Qμ− Q″S

when S″ occurs Under a stabilization policy, in theevent of S0 consumers lose ðc þ dÞ while producers gain ðc þ d þ eÞ for anet gain of ðeÞ With S″ producers lose a but consumers gain ða þ bÞ for anet gain of ðbÞ The average overall effect of price stabilization with astockholding policy is a net gain of ðb þ eÞ The 1970 Massell resultimplies result implies that the loss from stabilization for consumers ismore than offset by the gain when producers are included in the model

As a caveat, in the Oi (1961) and Waugh (1944) framework, it is clear

why producers prefer price instability given an uncertain demand This isbecause at the high price output is large, and at the low price output issmall In reality, high prices generally correspond to low output, not theother way around It is easy to make money in the Oi situation because ofperfect foresight, just like it is easy to buy low and sell high if one knows

in advance that high prices are just around the corner The problem inreality, however, is the risk of buying high and selling low The Oi andMassell models, in which instability is generated because of demand fluc-tuations, were applied by Tisdell (1972) to price stabilization schemes inthe Australian wool industry Tisdell concludes that stabilization of woolprices by the Australian Wool Commission may reduce the averageannual net income of growers and of the manufacturers of wool

A similar result can be shown when the source of instability comesabout from shifts in the demand curve In this case, the gains to consu-mers from stabilization are greater than the losses to producers Theseresults suggest that society benefits by stabilizing prices of storable com-modities through a stockholding policy The results are dependent on theuse of linear supply and demand curves If nonlinear curves are used,similar results can be derived, but they are not as straightforward Buteven though there is a net gain to society, there are both winners andlosers from stabilization policies Who wins and who loses depends on thesource of instability (whether it comes from shifts in demand or shifts insupply) In this case, the Compensation Principle can be applied to showthat stabilization can improve welfare

Fig 1 Massell’s model of stabilization

3 Food Security and the Role of Food Storage

For internationally traded commodities, the Massell (1970) resultshave to be modified Some countries may prefer price instability to pricestability even in a market setting in which supply and demand are bothtaken into account However, when all countries are taken together,stability is preferred, although there are associated gainers and losers

An important point raised byNewbery and Stiglitz (1981)is that pricestabilization can enhance income variability One can show this resultusing Massell’s model of stabilization The literature usually assumes thatgovernments store the commodity and that their common objective is tocreate price stability If producers rather than the government store thecommodity, then the effects are the same as under government storagewhen the government’s objective is to create stability The negative effectsfrom price instability on producer welfare are completely eliminatedunder optimal storage conditions created by producers, creating a world

in which ex ante production decisions equal ex post outcomes However,when multinational trading entities rather than producers carry out pri-vate storage, the activities of the former do not eliminate price instability,and the welfare effects are very different than under government storage.Also, price stability is unachievable if the government’s objective is tomaximize profits from storage activities In this case, the effects of govern-ment storage are identical to those when the multinationals carry outstorage

3 Government and private storage

In the following discussion on government and private storage, the realworld consists of both government and private stockholding activitieswhere private stockholding consists of at any one time players includingmultinational grain companies and farmers

3.1 Government storage

The stabilization literature assumes that the government, through holdingstocks, can bring about price stability However, the government purchas-ing stocks at the stable price and releasing stocks at the stable priceleads to theNewbery and Stiglitz (1981)result that price stabilization canbring about income instability In the above models, the government’sobjective is the stabilization of prices through the use of storage Optimalstorage by the government cancels the negative effect of instability.That is, farmers are as well off under instability as they are under stabilityprovided that the latter condition is brought about through the purchase

of stocks

4 Andrew Schmitz and P Lynn Kennedy

As shown later, the welfare effects of government storage practicesdepend on the objective function of the government If the governmentwere to maximize profit from storage (unlike the scenario above in whichthe government uses storage to bring about price stability), then storagewill not eliminate price instability That is, there are positive profits to thegovernment from engaging in storage.

3.2 Producer and middleman storage

One can show the conditions under which optimal storage by producerscan lead to a very different result compared to government storage Ifmiddlemen (profit-maximizing firms) rather than farmers engage in sto-rage, then storage reduces price instability but does not eliminate it.There is some level of storage that yields maximum profit to the privatemiddlemen (PM) In certain cases, storage by the PM would equal anamount stored by producers But, the welfare effects from PM storage arevery different from producer storage

How does PM storage compare to government storage? In the casewhere the government maximizes profits from storage activities, the solu-tion is the same as for the PM, but in the present case, the profits go tothe government rather than the PM

It is extremely difficult to construct a model that contains storage bygovernments and the private sector operating in a given market at thesame time Some argue that the private sector holds socially optimalstocks and there is no need for government involvement Under this argu-ment, the international storage of commodities would be questionable

4 Food storage: rich and poor countries

The above models are extended to include, in the presence of storage, therich and the poor ConsiderFigure 2, where demand by poor countries is Dpwhile demand by rich countries is Dr Total demand is TD Given supply S1,total quantity consumed is q1at a price of p1 Of the total, the poor consume

qp At supply S1, q2is consumed by the rich (and only the rich) at a price p2.With storage, the price is stabilized at pu and consumption totals to qu.Based on Figure 2, the net gain from storage is abcð Þ þ cdeð Þ Producersgain but consumers lose (Waugh result) However, one should questionthis result for poor consumers Is q preferred to zero consumption in thefirst period and is qp preferred to q in the second period? Suppose q isthe minimum amount of food needed by the poor In this case, consumerswould prefer price stability since they would have zero consumption atthe unstable price p2

Consider now the effect of income growth on the poor Demand shifts to

D0, and, in the absence of storage, prices fluctuate between p and p given

5 Food Security and the Role of Food Storage

TD Given supply S1 Now, the poor (at the high price p) consume the tionally minimal quantity required and consume qin the low price period.

nutri-In this case, the Waugh result can hold (Turnovsky, Shalit, & Schmitz, 1980)

5 Food storage: the small country case

Storage by a small country does not affect prices (Figure 3) World pricesare given by p1and p2 At price p1, the government buys and stores quan-tity S and then releases stocks S0at price p2(at least qc is needed for nutri-tional purposes) The government profit is ecgf The consumer pricebecomes pc, the quantity consumed is qc, a consumer subsidy at equili-brium is ahed, and the consumer benefit from stockholding is ahfd.The net benefit from storage is ecgf þ aPcfd− aPced = dcgf

6 Poor country exports

Because a country produces a good does not necessarily mean that thesame good is domestically consumed ConsiderFigure 4, where the excesssupply curve of good X is ES and domestic demand is D At price p1, all

of the domestic production is exported qð Þ On the other hand, if exports1are zero, then the domestic price is p and consumption is q

restrictions keep the prices of basic food items relatively low In the model

Fig 2 Rich and poor countries in the presence of storage

6 Andrew Schmitz and P Lynn Kennedy

one can view qas the minimum food need even though the poor are onlyable to buy the food at p and not at export price p1 In this case, withoutthe embargo, the poor can purchase no food.

From a stockholding perspective, producers and the government holdstocks, not consumers Governments can use held stocks to facilitate con-sumer food needs However, like private middlemen, producers will holdstocks to maximize profits rather than maximize consumer welfare Forexample, in Figure 4, stocks can be used to take advantage of price fluc-tuations within the band AB where the impact on domestic consumers is

Fig 4 Government versus producer stockholding

Fig 3 Food storage in the small country case

7 Food Security and the Role of Food Storage

zero But storage activities can be costly, especially in many poor tries where if storage facilities exist, they are poorly constructed and result

coun-in large levels of food waste

7 World and US grain reserves

The levels of world wheat and rice stocks are given in Figures 5 and 6,respectively The stock levels have fluctuated considerably over time.Generally, world stocks are high when commodity prices are low Towhat extent these stocks have lessened price instability and improvedwelfare is not examined here

8 US stock buildup and managing surpluses2

The United States is and has been a major holder of commodity stocksthat have been costly to maintain For an extended period of time, the

US government was holding an excess of stocks administered by theCommodity Credit Corporation (CCC) The CCC stocks of wheat ebbedand flowed with market conditions During the export boom period ofthe early 1970s, the stocks vanished only to reappear with the onset ofanother round of financial difficulties in the farm sector in 1978 In theshort term, two ad hoc programs were introduced to lessen the

Fig 5 World wheat ending stocks

2

This section comes verbatim from Schmitz et al (2010)

8 Andrew Schmitz and P Lynn Kennedy

accumulation of stocks: the Export Enhancement Program (EEP) and thepayment-in-kind (PIK) program These programs will be discussed in thenext section.

This stock buildup was related to the historical relationship betweenCCC loan rates, market prices, and target prices for US wheat As wheatprices declined in the first half of the 1980s, market prices first droppedbelow the target prices and then below the CCC loan rates

The loan program of the Commodity Credit Corporation had theeffect of setting an arbitrary floor on US wheat prices Farmers chose toput their wheat into the CCC nonrecourse program, given that the marketprice for wheat had declined below the loan rate Since the wheat pricesremained below the loan rate (plus accrued interest) during the entiremarketing period, farmers forfeited the grain under the terms of the con-tract and the CCC accumulated stocks This resulted in nearly three bil-lion bushels of wheat being placed in the CCC loan program between

1981 and 1986, and payments in excess of US$6 billion being made to USwheat growers

When loan rates were reduced through legislation passed in 1985(applicable to the 1986 crop), the quantity of wheat placed in that pro-gram declined substantially Since target prices were not reduced,

Fig 6 World rice ending stocks Source: USDA, economic researchservice using USDA, foreign agricultural service, production, supply, and

distribution database Note: 2014/2015 are forecasts

9 Food Security and the Role of Food Storage

deficiency payments to US farmers remained The reduction in the USloan rate had the effect of lowering the world price of wheat (Otherworld exporters, such as Australia and Canada, experienced an immediatedrop in wheat prices of roughly US$1 per bushel, which was equal to thedrop in the US loan rate for wheat.)

9 Export enhancement program

The US EEP was authorized in the 1985 Food Security Act to increase

US agricultural exports, challenge competitors who subsidize theirexports, and encourage US trading partners to begin serious trade nego-tiations on agricultural trade problems The primary goal of the EEP was

to match the prices offered by subsidizing EU competitors and to nate the enormous grain stocks that had piled up during the early 1980s.The EEP was used heavily by the US government between 1985 and

elimi-1995 Wheat was the most important commodity that received EEP fits (in terms of total value) For example, wheat accounted for 73% of allEEP expenditures from 1989 to 1993 Moreover, in 1993, the EEPaccounted for 93% of barley exports, 70% of egg exports, 60% of wheatexports, and 55% of wheat flour exports The highest annual amountspent by the US government to fund the EEP was US$1.15 billion in 1994.While it is apparent that the EEP had some positive effect on USexports, it is not clear that the benefits of the program outweighed the asso-ciated costs The EEP increased the volume of US exports by lowering theprice of imports paid by targeted countries The EEP had both a static anddynamic effect on international grain markets The static effect was related

bene-to the fact that the US Treasury had bene-to pay an amount equal bene-to the EEPbonus multiplied by the quantity shipped This so-called EEP bonus led tofurther overproduction by US grain farmers, which led to economic ineffi-ciencies There was also a dynamic effect associated with the EEP that wasquite pronounced in the feed barley market At certain times, the UnitedStates actually became a net feed barley importer under EEP because EEPcaused the equilibrium price in the rest of the world to drop, which madethe US market relatively more attractive to Canadian feed barley exporters

It is interesting that little research has been done on the impact of foodstocks and low commodity prices on food security Certainly, if foodstocks have a positive effect on food security, it should show up duringperiods of surpluses that resulted in low commodity prices for consumers,which include the poor.3

3

This applies to US Farm programs in general, as they caused food prices to be lower than would otherwise be the case This improves the affordability of food to lower income groups, apart from the US food stamp program.

10 Andrew Schmitz and P Lynn Kennedy

10 Food stocks and food security?

What role can public food stocks play in ensuring food security? AWorld

grain stocks (for example) have been used to stabilize domestic prices,and provide readily available emergency food aid Essentially, farmerincomes can be improved at the expense of the treasury; however, posi-tively impacting food security in a long-term fashion is unlikely The 2012article sums up this point (p XII):

The evidence suggests that public grain stocks can play a limited but important plementary role in improving food security, complementing a broader nonstock strat- egy that addresses both the resiliency of rural livelihoods and the functionality of overall safety nets Public grain stocks as a food security intervention is most effective

com-in the short term, especially for bridgcom-ing the time needed to import food and targetcom-ing support to helping ensure the most vulnerable have food to eat in times of market shocks a different story.

In this regard, the question always arises about individual country holding versus an international body that would be engaged in stockhold-ing activities If stockholding by governments is an important activity,wouldn’t governments be involved in purchasing grain for an interna-tional grain bank given the extremely low commodity prices?.Governments could buy wheat and corn, for example, at rock bottomprices via buying through multinational grain companies via trading com-modity futures The price of wheat reached a high of $439/MT in 2008while corn reached a high of $287/MT, $318/MT, and $332/MT in 2008,

stock-2011, and 2012, respectively (Figures 7 and 8) These prices have fallensignificantly since that time

11 Historical famines and diseases

Many disasters have resulted in mass starvation, disease, and death Inthe following sections, we highlight four periods in history where this wasthe case: (1) The Great Famine/Black Death in Europe, (2) The IrishFamine, (3) The Holodomor genocide in Ukraine, and (4) The demise ofthe Maya civilization We do so to illustrate the problems associated withinadequate food supply and the impact of stockholding In most of thecases cited below, adequate food stocks would have greatly reduced theincidence of famine and disease However, in the case of starvation inUkraine, the issue was not a lack of stocks, but rather the government’smandate that an unsustainable amount of food be exported as opposed

to being made available for domestic use

The world has changed considerably since the above events haveoccurred There is less of a need for individual countries to hold stocks.International organizations and rich countries provide much of theemergency food aid and medical supplies for natural disasters such ashurricanes, tornadoes, and earthquakes International organizationssuch as the Red Cross and the United Nations have expansive networksthat can provide immediate aid Rich nations have supplies availablebecause of their food storage activities Using the United States as anexample of a donor country, President Eisenhower introduced theAgricultural Trade Development and Assistance Act (Public Law 480)

in 1954, under which the United States provides food shipments tofood-deficient nations From the above discussion, the focus on optimalstorage should be on meeting emergency needs rather than on storagefor commercial purposes

Fig 8 Monthly corn prices from July 2000 to July 2014 (US$/bu)

12 Andrew Schmitz and P Lynn Kennedy

11.1 The Great Famine (1315
1317) and Black Death (1345
1353) inEurope

Two great pandemic disasters hit Europe in the fourteenth century

(1315
1317), which arose under environmental conditions that createdmalnutrition in all social classes, with the poor suffering the greatest Theincreasing population in Europe had depleted the land resources so thatthere was no margin of error for crop failures Also, during this time,food stockholding was inadequate Furthermore, the climate was under-going changes as Europe was experiencing cooler and wetter weather con-ditions and severe soil depletion
conditions which were not optimal foragriculture Starvation became so rampant that there were reports of can-nibalism in some areas where the normal food supply had been exhausted.The situation was further exacerbated by people eating the seed grainneeded for planting future crops Malnutrition led to illnesses such aspneumonia and tuberculosis Illnesses claimed the lives of 15% ofEurope’s population Later, just as conditions were improving, the pan-demic known as the Black Death (1345
1353) spread along the SilkRoad trade route between China and Europe Caused by a bacillus calledYersina pestis, this disease spread quickly through physical contact withinfected humans and animals, especially fleas All forms of the disease
bubonic (lymphatic infection), pneumonic (respiratory infection), andsepticemic (blood infection)
were deadly Without treatment, deathoften occurred within one week of infection So many people died thatmany were buried together in large pits It was estimated that the diseasekilled between 100 and 200 million people worldwide In Europe, the dis-ease killed about one-third of the population The disease had long-termand global demographic and socioeconomic impacts; it took over 100years for Europe’s population to recover from the effects of the disease

11.2 The Irish Famine (1845
1849)

The Irish Famine (1845
1849) was a period of mass starvation and ease in Ireland that resulted in over one million deaths (Bloy, 2013;

for a majority of people (sometimes up to 75% of the diet) The airbornefungus (Phytophtora infestans) known as Potato Blight arrived via trans-port ships from Mexico and caused potatoes to quickly rot and emit anauseous stench Because there was no cure for the disease, whole cropswere destroyed within weeks of infestation Most of the agriculturallaborers were paid low wages As the blight spread and destroyed the

13 Food Security and the Role of Food Storage

crops, workers were left unemployed and destitute Over one million Irishwere evicted from their homes or deported overseas As starvation andunsanitary living conditions increased, so did infectious health diseases(e.g., smallpox, typhus, dysentery, and cholera) which contributed to therising death toll.

11.3 Ukrainian/Holodomor Famine (1930
1934)

Holodomor is the term used for the brutal artificial famine imposed byStalin’s regime on Soviet Ukraine in the early 1930s (BBC.com, 2013;

agricultural collectivization program that eliminated private farms.Ukrainian farmers who refused to join the state-owned, collective farmswere forcefully evicted from their homes and deported to remote, unin-habited areas such as Siberia, where they were left without food or shel-ter Under Stalin’s agricultural collectivization program, Ukrainian grainproduction quotas were increased to a level that ensured these quotascould not be met In other words, Ukraine
which produced 27% of theentire Soviet grain harvest
became accountable for 38% of the quota

In 1931, Stalin created a blockade that closed the borders of Ukraine,making it the world’s largest concentration camp The blockade allowedgrain to be exported from Ukraine while banning food imports into thecountry, thus creating widespread starvation The genocide famine policyimplemented by Viachislav Molotov, top aide to Stalin, prohibited anyone

in Ukraine from obtaining food without a government-issued voucher.Those caught with unvouchered food were executed, often in clandestinemass executions handled by Lazer Kaganovich, head of the Soviet secretpolice At the height of the food blockade, approximately 30,000 peoplestarved to death on a daily basis By 1934, four million Ukrainians hadstarved to death (this does not include the number of people executed ordeported) The Soviet government claimed that the genocide in Ukrainenever occurred This claim was erroneously supported by others, such asWalter Duranty, a New York Times journalist who was awarded thePulitzer Prize in 1932 for helping the Soviets convince the world thatthe genocide in Ukraine was merely anti-Soviet propaganda

The above case where food was forcibly exported rather than used fordomestic consumption is drastically different from when governmentshave responded to natural food shortages For example, in 2007/2008,Kazakhstan imposed embargoes on wheat exports to guarantee adequatesupplies for the domestic population

11.4 Demise of the Mayan Civilization

Located in the tropical lowlands (rainforest) of Mexico and CentralAmerica, the Maya Empire was one of the most dominant indigenous

14 Andrew Schmitz and P Lynn Kennedy

societies of Mesoamerica (Mexico and Central America) for several ries before its collapse shortly before 1000 A.D In this empire, many city-states were established and connected through complex trade networks.History shows that the Mayas excelled in agriculture, architecture, astron-omy, hieroglyphics, and mathematics So what caused the demise of theircivilization? One theory considers catastrophic environmental changescaused by severe drought and is supported by mineral deposit excavations

centu-in that region (Moyer, 2014;Stromberg, 2012) Also, this is a reasonableassumption since Mayan agriculture was based on a complex irrigationtechnology dependent on ample water resources

12 Conclusions

Whether private sector storage can totally replace government storagehas been debated for some time Interestingly, producer storage has beenlargely ignored in the discussion Regardless of the welfare economicmodel used, both private and government stockholding can bring aboutprice stability and improve producer welfare Optimal stockholding onthe part of producers can offset the negative effects of production uncer-tainty created by phenomena such as droughts and plant diseases In thiscontext, the study byFeder, Just, and Schmitz (1980)on price uncertaintyshows that producers can gain from both storage and optimal hedging,and that price stability does not necessarily imply income instability.Conversely, nonproducer storage does not eliminate instability and is notpreferred to storage by either government or producers

But what does storage have to do with food security? As discussedearlier, starvation results partly from food stock availability for disasterssuch as drought and famine Although one might think of storage only as

a supply factor with respect to food security, the use of storage toenhance incomes can produce an entitlement effect In an agrariansociety, positive impacts of agricultural storage on income stability willhave a broader entitlement effect relative to an economy with a greatershare of urban poor Although it can lead to income stability for agricul-tural producers, price instability tends to undercut the access of the urbanpoor to a nutritional diet

Despite the positive role it can play in alleviating food insecurity, rage in itself cannot guarantee an adequate diet In fact, in many casesstorage is not feasible While certain agricultural commodities can bestored for long periods of time, other food products such as fresh fruitsand vegetables do not lend themselves to storage without processing.Cost of storage and lack of storage facilities are other factors that canmake storage infeasible

sto-Another limitation of storage relates to the persistence of surplus duction or shortage In the case of drought, storage can be used to spreadsurplus production from one year into future production deficit years

pro-15 Food Security and the Role of Food Storage

This is true in the case of short-term cycles However, as drought tions extend into longer periods it may be technically impossible tostore enough food to mitigate the resulting deficit In fact, even if an ade-quate surplus were available prior to the drought, without adequate warn-ing or sufficient information to prepare for the resulting famine it isunlikely that enough food could be stored in anticipation of the resultingdeficit.

condi-While stockholding can help guarantee an adequate supply of food, asufficient food supply only guarantees that there is enough food to eat Itdoes not guarantee that everyone has enough food to eat An adequatefood supply is a necessary but not sufficient condition for food security

As long as income inequality exists in a society the problem will persist

as low income groups lack adequate entitlements to access minimumnutritional requirements

From a policy perspective, managing food stocks (both domesticallyand internationally) is a complex task in part because at any given point

in time, it is difficult to obtain data on the amount of stocks of any fic commodity held in total by the private and public sectors In thisregard, it is important to keep in mind that producers also hold stocksconsistent with their risk management strategies

speci-References

massacre Retrieved from 25058256

http://www.bbc.com/news/world-europe-Bieri, J., & Schmitz, A (1973) Export instability, monopoly power, andwelfare Journal of International Economics, 3(4), 389
396

Bieri, J., & Schmitz, A (1974) Market intermediaries and price ity: Some welfare implications American Journal of AgriculturalEconomics, 56(2), 280
285

instabil-Bloy, M (2013) The Irish famine: 1845
1849 Retrieved from http://www.victorianweb.org/

Feder, G., Just, R., & Schmitz, A (1980) Futures markets and the theory

of the firm under price uncertainty The Quarterly Journal ofEconomics, 94(2), 317
328

Moyer, J M (2014, December 30) More evidence Mayan civilizationcollapsed because of drought The Washington Post.

Nelson, L H (2001) Great famine and black death Retrieved from

Stromberg, J (2012, August 23) Why did the Mayan civilization collapse?

A new study points to deforestation and climate change Retrieved from

=/science-nature/why-did-and-climate-change-30863026/

the-mayan-civilization-collapse-a-new-study-points-to-deforestation-Tisdell, C (1972) Some circumstances in which price stabilization by thewool commission reduces income Australian Journal of AgriculturalEconomics, 16(3), 94
101

Turnovsky, S J., Shalit, A., & Schmitz, A (1980) Consumer’s surplus,price instability, and consumer welfare Econometrica, 48(1), 135
152.Waugh, F (1944) Does instability benefit from price instability?Quarterly Journal of Economics, 58, 602
614

World Bank (2012) Using public food grain stocks to enhance food ity(Report 71280) Washington, DC: World Bank

secur-Wright, B D., & Williams, J C (1984) The welfare effects of theintroduction of storage The Quarterly Journal of Economics, 99(1),169
192

17 Food Security and the Role of Food Storage

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Food Security, Subsistence Agriculture, and Working’s Model

Charles B Mossa, James F Oehmkeband Alexandre Lyambabajec

a Food and Resource Economics Department, University of Florida, Gainesville, FL

32611-0240, USA; E-mail address: cbmoss@ufl.edu

b Department of Agricultural Economics, Michigan State University, East Lansing, MI

48824-1039, USA; E-mail address: joehmke@gmail.com

c School of Public Health, National University of Rwanda, Kigali, Rwanda;

E-mail address: alalyamba@gmail.com

Abstract

Purpose
This chapter examines whether donor investments in a marketchannel that rewards product quality increase food security in Rwanda.Specifically, do policy interventions that improve marketing channelsincrease the price received by farmers also increases smallholder income?Furthermore, does this increase in income improve food security?

Methodology/approach
To examine the effect of the policy tion, we estimates the relationship between the share of income spent onfood and income (Working’s Model) using ordinary least squares and alogit regression

interven-Findings
The empirical results support Working’s conjecture (i.e., theshare of income spent on food declines as income increases).Furthermore, whether the household benefits from the improved marketchannel does not affect the share of income spent on food

Practical implications
Increased household income appears to improvefood security However, the lack of a statistically significant effect of thepolicy intervention variable indicates that commercial agriculture doesnot eliminate household food production at home

Keywords: Food security, household production, value chain, coffeeproduction

JEL classifications: O13, Q18, C24

Frontiers of Economics and Globalization

Volume 16 ISSN: 1574-8715

Copyright © 2016 by Emerald Group Publishing Limited

All rights reserved

1 Introduction

This chapter examines the effect of the Sustainable Partnerships toEnhance Rural Enterprises and Agribusiness Development (SPREAD) onfood security in Rwanda, Africa, using Working’s model of householdexpenditures on food (Working, 1943) Specifically, we are interested inthe effect of donor investments in the marketing channel for coffee.SPREAD falls within the Feed the Future goal of increasing food security

by increasing the return to smallholders In the case of Rwandan coffee,this intervention includes the creation of a fully washed coffee value chain

to increase the value of Rwandan coffee Access to these washing stations

is hypothesized to increase the income to small farmers by providing a pricepremium for higher quality coffee Hence, the increase in income isexpected to decrease the rate of poverty in Rwanda (Moss, Lyambabaje, &

share of household income spent on food decreases as income increases.Working’s Law is a specific form of the standard Engel curve As described

of poverty We modify the Kumar et al formulation to focus on theeffect of increased income on noncommercial household production offood Specifically, using the household production model concept formu-lated by Becker (1965), the household maximizes utility by allocatingincome across purchased commodities and by allocating time (and otherresources) between generating income and producing goods for householdconsumption Given the results of Moss et al., we hypothesize thatSPREAD has increased smallholder income This increase in income mayincrease the opportunity cost of household food production at home, thusaffecting the share of income spent on food

2 Engel curves and Working’s formulation

The general formulation of the Engel curve is attributed to the Germanstatistician Ernst Engel (1821
1896) As discussed byChai and Moneta

civil unrest throughout Europe in 1848 Workers drawn from rural areasinto the cities during the Industrial Revolution were experiencing poorliving conditions This civil unrest led to an 1855 conference held inBrussels to address the factors affecting workers’ living conditions FromEngel’s involvement in this issue came The Consumption-ProductionRelations in the Kingdom of Saxony (Engel, 1857) His results indicatedthat a consumer’s demand for food (nourishment) increased at a decreas-ing rate (or, the percent of income spent on food decreases as incomeincreases) This became known as Engel’s Law

The specific form of the Engel curve estimates was derived from thework of Holbrook Working (1895
1985) As a professor of economicsand statistics at Stanford University’s Food Research Institute, Workingdeveloped a formulation (1943, pp 45
46) which states that

[T]he relationship of expenditures for food to total expenditure is remarkable for its uniformity and closeness with which it approximates the relation

F

T = a − b logT

where F represents expenditure on food and T represents total expenditure Expressed otherwise, this means that the proportion of total expenditure that is devoted to food tends to decrease exactly in arithmetic progression as total expenditure increases in geometric progression With only certain exceptions at very low levels of total expen- diture, this law of relationship applies closely for families of every size, of every occu- pation, and in each type of community studied.

relationships between the share spent on food and consumer income Asnoted by Unnevehr et al (2010), the Working
Leser formulation hasbecome an important component in the development of consumerdemand

While the Working
Leser formulation appears to be supportedempirically, we examine the economic implications of this formulationusing the Florida demand model developed by Theil, Chung, and Seale

The Florida model then provides a formulation for ðwi− ~wiÞ as thatportion of the demand system accounting for changes in relative prices

consumption group (i.e., food, clothing, and housing) are independent

21 Food Security, Subsistence Agriculture, and Working’s Model

of food can be as high as 30% While the individual Working’s ships by definition must sum to one,1the variation for several consump-tion groups like transportation is fairly small Differences in theconsumption of food due to differences in income explain most of the var-iation in international consumption patterns This result is consistent withthe empirical results found by Working However, the results of Theil

pro-portional to the level of the development of the country

3 Empirical model

Unlike Theil et al (1989), we estimate the implications of Working’smodel on households within a single country at a particular time(i.e., Rwanda in 2010) Hence, we do not have sufficient price data tomodel the difference between the observed budget share for food and thatcomponent determined by variations in household income We focus onWorking’s model for food as a function of the logarithm of total expendi-tures Mathematically, rewriting Equation (1) for the food componentyields

allow-ing additional nonlinearity Usallow-ing a third-order Taylor series expansion

is the highest with respect to household income They argue that for anyincome level less than that maximum, consumers have an inadequateincome to meet their basic dietary needs

The question posed in this chapter is whether low-income householdscompensate for low incomes by producing more food outside the market

To consider this effect, we modify the simple linear relationship in

purchased food However, as depicted in Becker’s household production

model (Becker, 1965), households may produce food from their factors ofproduction, including labor and land available to the household To ana-lyze this possibility, we estimate the relationship

house-In evaluating the impact of a program like SPREAD, the questionthen becomes whether SPREAD affects the amount of food produced bythe household relative to that purchased in the market To analyze this,

we start by estimating the effect of the intervention onEquation (5) As afirst step in this analysis, we are interested in estimating the probabilitythat a household will benefit from the intervention Mathematically, weformulate this problem using a logit formulation

to estimate the probability that the household will benefit from SPREAD.Putting the pieces together, we estimate the effect of program benefits

on the share of food produced by the household

where∂E½f ðz; ϕÞ=∂zk= ϕkf ðz; ϕÞ − f ðz; ϕÞ=ð1 þ exp½ϕ0zÞ

, which is the ginal probability of benefiting from SPREAD

mar-Next, we examine whether the benefits from the program affect thebasic Working’s model

23 Food Security, Subsistence Agriculture, and Working’s Model