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Column: How to Respond to Food and Energy Shortages – A Brief Guide for Policy Makers

LONDON, August 5 (Reuters) – Ensuring an adequate supply of food at an affordable price has always been a fundamental responsibility of government, and in recent centuries that responsibility has extended to energy as well.

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

Famine and fuel shortages have always been a concern of the ruling class because they threaten the stability of the state.

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In classical fifth-century Athens, the supply of corn was regularly on the agenda of the assembly, alongside matters such as defense (“Athenian Democracy”, Jones, 1957).

Athens never exercised a complete state monopoly over grain supplies, but neither was it indifferent or entirely left to market forces and private merchants.

In emergencies, the state provided special funds to buy grain and distribute it to poorer citizens to alleviate famine (“Charities and Social Aid in Greece and Rome,” Hands, 1968).

In Rome, the magistrates have seen it as their duty since the beginning of the republic to organize emergency supplies if necessary.

“The price of grain is essentially linked to the concept of hunger,” says Geoffrey Rickman, the famous historian of the Roman food security system.

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

“The lowly and poor in society had neither food nor money reserves and therefore immediately suffered an increase in the cost of basic necessities.”

“The rich and upper class, in contrast, rarely experienced real hunger during a famine because of their financial resources or even private grain reserves.”

“If grain shortages persist, the rich may suffer economically, having to use more of their wealth or their own grain to cushion the crisis, but they haven’t starved.”

“The poor did it, not necessarily because of a lack of grain, but because the current grain price had risen beyond what they could normally afford due to crop failures, panic buying or speculation.”

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

At the other end of Eurasia, China’s Song, Ming, and Qing dynasties organized a hierarchy of granaries in villages, counties, and provinces to alleviate hunger and regulate prices (Nourish the people, Will and Wong, 1991).

While local granaries were simply meant to ensure the populace didn’t starve when the harvest failed, some of the larger provincial stores were ambitious efforts to regulate prices to ensure they stayed “always normal”.

ENERGY SECURITY

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

In London, city officials became increasingly interested in energy prices as imported coal from the North East of England replaced locally collected wood as the main fuel source for the fast-growing metropolis.

When coal became scarce and prices rose, the city responded by regulating prices, organizing special distributions of coal to the poor, and making charitable payments to cover fuel costs.

City authorities and Parliament normally responded to rising prices by launching a formal inquiry into hoarding, stockpiling and allegations of cartel-like behavior (“The Rise of the British Coal Industry”, Nef, 1932).

The City of London and Parliament regularly conducted inquiries into the supply and price of coal from the early 16th century to the 1830s (“Monopoles, cartels and trusts in British industry”, Levy, 1927).

At times, city and parliamentary authorities considered creating a publicly funded fuel reserve to ensure supplies to the capital, but the idea never materialized.

But by the 1920s imported oil was replacing domestically produced coal as the main fuel for Britain’s Royal Navy and merchant shipping, and fuel supplies had become a national security concern.

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

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

British inter-war planning, as well as the ever-normal Qing Dynasty granaries, also live on in China’s fast-growing but secret state-owned petroleum reserves, designed to protect the economy from wide swings in oil prices and allow the armed forces to keep fighting in the event of another embargo.

STATE ANSWERS

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

In any case, food and energy shortages have a price and a physical component. When food and energy are beyond the reach of ordinary households and businesses, it doesn’t matter if they are still physically available.

Faced with rising prices, the first reaction of opinion leaders and politicians is to blame middlemen, traders and speculators for holding back supplies, hoarding tight inventories and driving up costs to consumers.

The response is usually to launch an investigation by a parliamentary committee or regulator that finds no conclusive evidence that price increases are caused by hoarding rather than genuine scarcity, but demonstrates and can be used to demonstrate the government’s concern for its citizens , to scare traders.

At a more practical level, policymakers will order emergency releases of food and fuel from strategic reserves to ease shortages and drive down prices.

rationing and subsidies

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

But relying on the pricing mechanism places the greatest burden on the poorest households and the most financially vulnerable businesses.

For reasons of social justice and political stability, governments usually try to modify the price-based distribution of food and fuel.

Policymakers typically intervene by introducing price controls and rationing; mandatory assignment to specific customers; Providing supplies to priority households and businesses at lower prices.

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

Interventions aim to protect the poorest members of society – but they also seek to protect the most politically influential and dangerous citizens who are typically the urban middle class.

Related column:

– White House uses oil reserves to place huge spread trade (Reuters, April 1)

John Kemp is a market analyst at Reuters and the views expressed are his own

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Editing by David Evans

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.

John Kemp

Thomson Reuters

John Kemp is a senior market analyst specializing in oil and power systems. Before joining Reuters in 2008, he was a trade analyst at Sempra Commodities, now part of JPMorgan, and an economic analyst at Oxford Analytica. His interests span all aspects of energy technology, history, diplomacy, derivatives markets, risk management, politics and transitions.

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