In 2008, an extraordinary price surge coursed through the world rice market, raising alarms over a world “food crisis.” Subsequently, the Association of Southeast Asian Nations (ASEAN) approved the ASEAN Integrated Food Security (AIFS) Framework. One of the components of the AIFS Framework is to support the establishment of a long-term mechanism for the ASEAN Plus Three (ASEAN+3) Emergency Rice Reserve (APTERR). The AIFS Framework builds on an existing pilot project among the ASEAN+3, namely, the East Asia Emergency Rice Reserve (EAERR). This report discusses the opportunities and challenges facing the establishment of a permanent emergency rice reserve scheme in the ASEAN region under the mandate of the AIFS Framework.
Emergency reserves as a public good
Food security is defined under the AIFS Framework as a condition in which “all people, at all times, have physical and economic access to sufficient, safe, and nutritious food that meets their dietary needs and food preferences for an active and healthy life.” Hence, the dimensions of food security are availability, accessibility, utilization (i.e., converting access to food into nutritional well-being), and stability.
During normal periods, markets may work reasonably well to ensure adequate supply and distribution of food, addressing at least the availability issue. However, market failure becomes apparent in times of food emergencies. First, in emergency situations caused by widespread calamity, commercial food distribution networks may be seriously disrupted and lack the incentive and coordination to rapidly restore supply lines. Due to transaction costs, private traders may move too slowly to release stocks or bring in stocks from other areas or from abroad; worse, they may also be prone to speculative hoarding in anticipation of a higher price.
Assuming good governance, a centrally coordinated response by a government free of commercial motives can address faster and more decisively the day-to-day needs of the affected population. Second, establishing and operating an emergency response service as a commercial venture would likely be rendered infeasible by large transaction costs (hence, such privately-run services are rarely observed in practice). For instance, identifying prepaid customers in the event of a large-scale disaster may involve too many costs or delay in service delivery. Third, widespread hunger can lead to social unrest, undermining key market institutions such as private property rights. Private decisions may fail to consider the institutional risks posed by price spikes and supply disruptions.
Extreme price increases may cause the nutrient intake of the poorest households to fall below a critical threshold. Poor households may not have access to coping mechanisms (e.g., sale of assets, inter-household transfers, ability to relocate); hence, the poor may require special assistance. Moreover, market bubbles and volatility can lead to extreme price episodes that may require special protection measures for the most vulnerable households. To the extent that food reserves expedite response to food emergencies, society will enjoy the intended benefit of standby reserves. In this sense, emergency food reserves are a public good.
- Asian Development Bank
- © Asian Development Bank