Mao Yushi: Grain Market Needs Further Opening Up

Recently, the British magazine Economist (September 11, 2010, -17 date) has two commentary recently.

Food is a topic constantly mentioned by any society.

If the poor want to eat, the rich can not live without food. From the national level, some countries will be in turmoil due to lack of grain, while some countries worry that the rest of the grain will not come out.

Not to mention that some countries have to eat their own high priced grain because they can not import cheap imported grain.

Under such circumstances, the international grain market has become an important channel for adjusting the surplus and deficiency of grain in various countries.

However, this market often spreads panic. Food prohibition cases often occur and even lead to multinational chain reaction.

For example, in August this year, Russia issued a ban on grain exports, and then Ukraine "follow suit" said it would impose quotas on grain exports.

In the past, China also banned grain exports.

These actions have caused the rush of food buying in the traditional importing countries in the international market.

The sudden rise in grain is considered likely to trigger a similar food crisis in the period 07-08.

Agriculture has its special nature. Even in the modern society with advanced science and technology, disaster reduction will happen, that is, the alternating of fortune and regret.

However, the modern society has long been out of the Malthus trap, and the world's grain supply is basically in excess of demand. So in the past half century, the grain price has dropped by nearly half.

The open international trade market has proved theoretically and empirically beneficial to the well-being of the society.

Regretfully, the international food market has frequently seen the establishment of trade barriers between different countries, which has contributed to pushing up grain prices.

The two article in the economist stresses that countries often mistake food self-sufficiency as the safest.

Most people in China also look at problems like this.

In fact, developing the international trade of grain and optimizing the allocation of resources can reduce production costs to the maximum and ensure the global economy.

Don 't starve thy neighbour

Don't let your neighbors starve.

British economist, 11-17 September 2010

How to restore confidence in the grain market after soaring wheat prices this summer?

The essence of agriculture is the alternation of rainwater, temperature and growth cycle. Therefore, the repetition of these phenomena is not surprising.

Food prices soared in 2007-08. At that time, Mozambique and more than 30 other poor countries suffered from high prices and riots, and Russia restricted exporters to export grain.

Unlike the real price of food that has fallen for decades, the world's food demand pattern has changed, and the era of low grain prices has ended.

This summer, world wheat prices are soaring again.

The food price insurrection has shaken the Mozambique regime.

The Russian government banned wheat exports for the second time in three years.

Is the world facing a new round of grain price changes?

Not necessarily, this is not the second food crisis.

Grain prices rose for several months in 2007-08, and grain prices rose only in some commodities (mainly wheat) this summer, and average grain prices rose only slightly compared with the beginning of the year.

Grain reserves in 2007-08 reached the lowest level in the past thirty years, but the current grain reserves have returned to normal levels.

The current turmoil in Mozambique has little to do with the rise in grain prices.

Unlike 07-08, there has been no major change in supply and demand this summer.

The world wheat production in 2010 is the third highest in history.

The problem of grain market this summer is not a big deal, but why is there a supply shock?

That's the problem.

Wheat production, which accounts for only 8% of world wheat production, has led to trade embargo and panic buying.

What should the importing countries do? For some countries, the answer is obvious: don't believe in the market; self sufficiency; food security starts at home.

This is a very frustrating view.

Self sufficiency is inefficient, and small market is more unstable than big market.

At present, scientists are speculated that climate change may cause Russia to experience more extreme heat waves.

These will affect the grain harvest and make the price more unstable.

Climate change may change the mode of production; some barren land will become unsuitable for planting; now barren land will become suitable for planting; some countries will import more; others will export more.

Self sufficiency is a policy to starve neighbours when production patterns may be reshaped.

The best way for countries to adapt to these disruptions and disruptions is to make the market bigger and more flexible.

However, the world food market is becoming smaller and easier to be interfered. Reversing this trend is in the interests of every country. There are three ways:

First, the United States, Europe and Japan should reduce agricultural protectionism.

Reducing agricultural protectionism means more food trading.

This argument has been debated before (and some effects have been achieved: reform has been carried out, though the reform is not thorough).

Climate change and distorted markets make this argument even more convincing.

Second, grain trade needs some safeguards to deal with export ban.

That sounds unlikely, because agriculture has always been a stumbling block to the world trade organization.

But since the North American Free Trade Agreement allows sanctions on export restrictions, WTO should do the same.

Importing countries also have legitimate rights and interests.

Third, the world will benefit from the global grain reserve system.

This will enable importing countries to believe that grain prices will always have food to buy when prices rise, and that they can reduce panic buying and retreat to food self-sufficiency.

John Maynard Cairns's proposal after World War II is still a good suggestion.

Although there are some practical difficulties, such as who will control the sale of reserve grain and when to buy grain reserves, these difficulties can not be solved.

The United Nations World Food Programme can operate similar systems.

Farmers, environmentalists and governments often doubt the grain market, which is short-sighted.

One billion people all over the world are starving and feeding the world is becoming more and more difficult.

More food needs more investment, but investors can not get away from the global market.

To solve the problem of food and clothing for the entire human race, such a market is indispensable.

{page_break}

Field events

Memorabilia in wheat fields -- on grain prices

British economist, 11-17 September 2010

In addition to high prices, wheat price instability can also cause panic.

The golden wheat rippled and the harvest was in sight.

For farmers, nothing is more joyful than these.

However, the joy of harvest in the northern hemisphere is accompanied by chaos in the global wheat market.

One of the major causes of this phenomenon is the world's largest wheat exporter, Russia.

Under the common influence of fire and drought, 1/3 of Russia's crops were destroyed and the government banned wheat exports.

Initially, the temporary ban was postponed to next year's harvest season.

The news has led to soaring wheat prices: compared with the low of $4.26 a bushel in June, wheat prices have increased two times, triggering a global food panic.

The United Nations Food and Agriculture Organization (FAO) held a special meeting to discuss rising prices.

The headlines suggest that the world is facing a food crisis similar to that of 2007-08.

The rise in grain prices could make Mozambique's recent riots worse.

Many poor countries worry that the rise in grain prices will trigger a bigger crisis than 2007-08.

During the last crisis, protests and demonstrations took place in many countries including Egypt, Haiti, Cote d'Ivoire, Uzbekistan and Bolivia.

The largest wheat importer in the world, Egypt, Tunisia, Algeria and Jordan, has bought a lot of wheat in the spot trading market to deal with the Russian ban.

Although the wheat futures market does not disclose the identities of purchasers, these countries are likely to buy wheat futures and seek stable supply.

These panic actions magnified the impact of Russia's export ban.

The short-term panic should have quickly subsided.

In contrast, the crisis two years ago was attributed to more serious structural adjustment.

In developing countries, with the improvement of living standards, the demand for meat as a staple increased, and the demand for grain grew accordingly (one kilogram of pork required 2 kilograms of grain and one kilogram of beef required more).

This will lead to a rise in grain or other grain prices over a long period of time.

However, grain prices suddenly rose this year, especially wheat prices.

Nevertheless, the price is still 40% lower than the record high, slightly higher than a month ago.

If we explore further, we find that other aspects are more optimistic.

The supply is adequate.

FAO estimates that wheat production will reach 646 million tonnes this year, although it is 5% lower than that of last year's harvest season, but it is still third in history.

The harvest of the United States and Canada is good. Australia has successfully dealt with the threat of locusts and will have a good harvest.

Last year, after a bumper harvest, grain stocks were fully stocking.

Grain reserves at the beginning of this year hit a seven year high.

By 2011, reserves will be reduced to about 181 million metric tons.

This figure is much higher than the 144 million metric tons of the worst food crisis.

Maximo of the International Food Policy Institute (IFPRI)

Torero believes that even if Ukraine and Kazakhstan implement export ban (both countries are considering, on the one hand, under Russian pressure), the supply is still sufficient.

This year's high grain prices will encourage farmers to grow more wheat next year.

Oliver, a farmer in Cambridge County, England

Walston believes that the panic of grain prices has made him feel "difficult, excited and disappointed".

He regretted selling some of his harvest in the form of forward contracts when wheat prices went down.

Those farmers who did not sell their inventory could earn some money this time.

There are also other factors that push wheat prices down.

For example, farmers use cheap feed instead of wheat to feed livestock; low oil prices make pportation costs and demand for biofuels fall.

It must be recognized that efforts to stabilize grain prices have been frustrated in the past decades.

The growing demand for food in developing countries has put pressure on the market.

This has led to a more obvious reaction from the market to some phenomena, such as the Russian export ban.

Russia and Ukraine were not important wheat exporters in the past. With the improvement of farming conditions in these countries, nearly 30% of the world's wheat is currently supplied.

Other countries in the northern hemisphere have reduced crop production, said FAO official Abdolreza.

Abbassian says the climate around the Black Sea is changeable, and these areas are innate for grain growth.

If market fluctuation intensifies, farmers will be uncertain about what kind of problems they will have in the coming year.

Climate anomalies and possible droughts and floods will also increase uncertainty.

Pakistan, the world's eighth largest wheat producer, has been hit by floods recently. Although flooding is taking place after this year's harvest season, it will still damage crop harvest next year.

In response to the last food crisis, several major powers such as Argentina, India and Russia issued export bans.

These actions have led to increasingly severe supply problems.

This year, the price is low, the stock is big, the supply will not have the problem.

But if other food exporting countries follow suit, then the importing Congress will buy more wheat at any cost and further push up prices.

Farming needs to be done as early as possible.

Those who have read habits before bedtime will find that some parts of game theory are equally interesting in the economic works.