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The economist who made the case that corporate profit-seeking contributed to skyrocketing prices over the past several years is out with a new paper arguing that reviving public grain reserves could stabilize food prices in an uncertain future.

Last year, Isabella Weber outlined how price shocks in essential commodities give manufacturers a reason to raise their prices in tandem and, critically, avoid price competition to protect or increase their profit margins. This theory of sellers’ inflation reveals how market power can worsen inflation.

This summer, Weber and her co-author, Merle Schulken, turned their attention to commodity price shocks that drive sellers’ inflation to begin with. A stable, affordable supply of essential commodities such as food is critical to human life and production systems. Weber and Schulken argue that an unfettered free market does not provide this stability, or efficient resource distribution, contrary to the neoliberal rationale.

The co-authors illustrate that food prices, in particular, tend to spike above and below the theoretical efficient price equilibrium where supply meets demand, as predicted by economists. That’s because growing food and raising animals takes time. When a crop fails farmers cannot quickly grow more to fill a shortage. Likewise, if too many farmers start ramping up production when prices are high, they could overproduce, leading to a price collapse come harvest time.

Starting in the 1970s, neoliberal economic thinkers convinced policymakers around the world that robust futures markets, free trade, and limited government intervention would best solve the issue of price volatility or food shortages.

However, through a combination of economic analysis, historical review, and interviews with industry experts, Weber and Schulken conclude that this approach made volatility worse. Indices show greater food price volatility particularly since the 2000s, with global food price crises starting in 2007, 2010, and 2020. These crises left millions hungry and, in some cases, sparked riots. Most recently, food price hikes increased the absolute number of hungry people around the world by 40 million between 2021 and 2022.

Higher highs and lower lows particularly harm certain communities in the Global South. The legacy of colonialism leaves some countries with less diversified economies that depend on low-priced food exports, like cocoa, coffee, and sugar. When food prices suddenly fall, farmers and the local economies that depend on them suffer. Other low-income countries in parts of Asia and North Africa import a larger portion of their grain, exacerbating regional food insecurity when global grain prices rise.  

A big part of the problem is the increased corporate consolidation and financialization that follows neoliberal deregulation. A handful of companies control most global food trade and maintain an unknown, though likely enormous, private storage capacity. “Just three companies (ADM, Bunge, and COFCO) can store as much wheat as the total annual consumption of the US, UK, and Turkey combined,” Weber writes. Private grain traders have every incentive to hold onto their stores during a global shortage and sell at the perceived peak of the market, driving prices up. Private traders also place bets on price changes, so they profit whether prices rise or fall and benefit from general instability, Weber notes.

Policymakers need to consider another way to stabilize food prices as climate change increases the likelihood of weather-related disruptions. Weber and Schulken propose government food stocks. Stocking staple foods in government reserves can prevent price shocks by releasing more food into the market during times of shortages. These buffer stocks solve the inherent time-lag problem that drives volatility because extra food in storage can fill sudden needs when farmers cannot, or private actors will not.

Farmers also have the option to sell into federal reserves in times of surplus, providing a price floor for crops. Weber proposes both local reserves and international cooperation around strategically placed global reserves to build resilience in the system. Public grain reserves would not replace private companies, but they would introduce a public competitor into the market with the explicit goal of stabilizing the price of essential goods.

This idea isn’t new. The U.S. had something like a federal grain reserve program after the New Deal. China and India also operate public food reserves and the European Union runs a limited food-buying program to maintain price floors for select foods. However, the U.S. and other countries have backed away from federal reserves in favor of laissez-faire policies. Further, the World Trade Organization only allows governments to buy food for buffer stocks at the prevailing market rate, based on the argument that too much public support for agriculture can distort trade. If a country wants to maintain a crop price floor, then the price difference between that floor and the market rate will count towards that country’s limit on trade-distorting support, as set by the WTO. This regime has prevented public buffer stocks from expanding, particularly in the Global South.

In addition to price stability, Weber argues that the power of the government purse can also support a green transition in agriculture. The government could implement conservation, biodiversity, and emissions reduction requirements for farmers who want to sell into the national reserve.

Finally, Weber argues that greater financial regulation of commodity traders could prevent excessive financialization of essential goods and procyclical herd behavior. Last year, the UN Trade and Development organization recommended that the financial arms of large commodity traders should abide by banking regulations.