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Do Stock Reserves and Price Control Stabilize Grain It is widely held that stock reserves may smooth annual grain supply against production fluctuations and random shocks, and price control may function in the same direction to a certain extent. Although the 2007-08 price boom and bust represented a sharp shock which could be largely absorbed by proper operation of stock reserves and price control to some extent, however, the continuing declines in the world grain stocks since 1999/2000 might be the fundamental force behind the upward price moves from 2005/2006. As the release from stocks effectively covered the deficits between annual production and consumption for consecutive 5-6 years without impact on price, the market signals received by farmers and policy makers did not encourage any catch-up in grain production to meet the increase in consumption demand. It is quite likely that the trend of deficit has been treated as random fluctuations, and a large shock is the result of accumulated forces temporarily depressed by stock operation. Many developing country governments take food prices as a politically sensitive issue and always try to maintain a stable grain price through price control associated with state reserves. As the force behind price change, random fluctuation vs. emerging trend, may be misinterpreted, the political pressure of stabilizing prices may lead to accumulated forces for a big crisis. If grain security is the real policy goal, quantity in food demand/supply balance, instead of price, should be given more attention in operating grain reserves and in setting price policies. |