CHRONICLE-How to respond to food and energy shortages – a short guide for decision-makers: Kemp


Band John Kemp

LONDON, August 5 (Reuters)Ensuring an adequate supply of food at an affordable price has always been a fundamental responsibility of the state, and in recent centuries this responsibility has also extended to energy.

A government that cannot ensure the regular supply of food and energy at prices that its citizens can afford to pay is likely to face political and social unrest and is unlikely to stay in power for long. .

Because they threaten state stability, famines and fuel shortages have always been a particular concern for the ruling class.

The supply of maize was a regular topic on the assembly agenda in classical fifth-century Athens, alongside such matters as defense (“Athenian Democracy”, Jones, 1957).

Athens never exercised a complete state monopoly on corn supply, but it was never indifferent or entirely left to market forces and private merchants either.

In the event of an emergency, the state would endow special funds to purchase grain for distribution to poorer citizens to alleviate starvation (“Charities and social aid in Greece and Rome”, Hands, 1968).

In Rome, from the beginning of the republic, the magistrates considered it a duty to organize emergency supplies in case of need.

“The price of grain is essentially linked to the concept of ‘famine'”, according to Geoffrey Rickman, the famous historian of the Roman food security system.

“As in the modern world, in the ancient, famine is a concept with class and financial connotations”, he observed (“The corn supply of ancient Rome”, Rickman, 1980).

“The meek and poor in society had no reserves of food or money and therefore immediately suffered from the rising costs of basic necessities.”

“The wealthy and upper classes on the contrary have rarely experienced real hunger during a famine because of their financial resources or even their private reserves of grain.”

“If the grain shortage persists, the wealthy may suffer economically by having to use more of their wealth, or their own grain, to protect themselves against the crisis, but they did not starve.”

“The poor did this, not necessarily because there was a complete lack of grain available, but rather because the current price of grain had risen beyond what they could normally afford to pay, in because of bad harvests, hoarding or speculation”.

During the Republican and Imperial periods, the Roman state organized grain shipments and storage, and distributed grain at controlled prices or free to eligible citizens.

Across Eurasia, the Chinese Song, Ming, and Qing dynasties organized a hierarchy of village, county, and provincial granaries to relieve famine and regulate prices (“Nourish the people”, Will and Wong , 1991).

While the local granaries were simply intended to ensure that the population would not starve when the crops failed, some of the larger provincial stores were ambitious efforts to regulate prices to ensure they remained “always normal”. .

ENERGY SECURITY

As modern mineral-based energy systems replaced traditional organic systems, state responsibility expanded to encompass the availability and price of fuel (“History of the British Coal Industry”, Hatcher, 1993).

In London, the city government has become increasingly interested in energy prices, as coal imported from the North East of England has replaced locally harvested timber as the main source of fuel for the metropolis in rapid growth.

When coal became scarce and prices rose, the city responded by regulating prices, arranging special distributions of coal to the poor, and making charitable payments to help defray the cost of fuel.

City authorities and parliament usually reacted to rising prices by launching an official inquiry into hoarding, stockpiling and allegations of cartel-type behavior (“The Rise of the British Coal Industry”, Nef, 1932 ).

The City of London and Parliament regularly launched inquiries into the supply and price of coal from the early 1600s to the 1830s (“Monopoles, cartels and trusts in British industry”, Levy, 1927).

At times, the city and parliamentary authorities considered the creation of a state-funded fuel reserve to ensure supplies for the capital, but the idea was never implemented.

But by the 1920s imported oil was replacing locally produced coal as the main fuel of the British Royal Navy and commercial shipping and fuel supply had become a national security issue.

British defense planners began to insist on the idea of ​​holding emergency oil stocks sufficient to cover at least three months of imports in the event of a blockade (“Oil: a study in wartime policy and administration”, Payton-Smith, 1971).

Britain’s interwar planning lives on in the United States Strategic Petroleum Reserve and the International Energy Agency’s requirement for countries to hold oil stocks equivalent to at least 90 days of net imports (“Agreement on an International Energy Program”, IEA, 1974).

Britain’s interwar planning as well as the still-normal granaries of the Qing dynasty also live in China’s rapidly growing but secretive public oil reserve meant to protect the economy from wild swings. oil prices and to allow the armed forces to continue to fight in the event of an embargo.

STATE RESPONSES

In 2022, responses to rising food, oil and utility prices in the United States, Europe and emerging markets are all rooted in the same age-old traditions.

Either way, food and energy shortages have a price as well as a physical component. If food and energy are unaffordable for ordinary households and businesses, it doesn’t matter that they are always physically available.

Faced with escalating prices, the first reaction of opinion makers and policy makers is to blame middlemen, dealers and speculators for withholding supplies, hoarding scarce inventory and driving up costs for consumers. .

The response is normally to launch an inquiry by a parliamentary committee or regulator, which finds no conclusive evidence that price increases are driven by hoarding rather than genuine shortages, but demonstrates the government’s concern for its citizens and can be used to scare off dealers.

On a more practical level, policymakers will order the emergency release of food and fuel from strategic reserves to ease shortages and in an effort to lower prices.

RATIONS AND SUBSIDIES

Prices and market mechanisms will almost always ensure that food and energy remain available to households and businesses with sufficient financial resources to pay.

But relying on the price mechanism imposes the heaviest burden on the poorest households and the most financially fragile businesses.

For reasons of social equity as well as political stability, governments generally seek to alter distribution based on food and fuel prices.

Policy makers usually intervene by implementing price controls and rationing; mandatory assignment to specified clients; and making supplies available to priority households and businesses at lower prices.

They can also provide direct financial grants and other payments to poorer households and businesses to help them survive the crisis.

The interventions aim to protect the poorest members of society – but they also attempt to protect the most politically influential and dangerous citizens, who are usually the urban middle class.

Associated column:

— White House uses oil reserve to place giant spread operation (Reuters, April 1)

John Kemp is a Reuters market analyst, opinions expressed are his own

(Editing by David Evans)

(([email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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