Economic alternatives and policy implications of a strategic commodity reserve for national security considerations

Abstract

The maintenance of adequate food reserves for national security considerations is a relevant policy goal for society. Food supplies are a major link in our national security. However, the United States has never established a strategic commodity reserve program. The food stocks held by the Commodity Credit Corporation are primarily by-products of price stabilization policies, rather than results of a carefully-defined emergency food program. The basic postattack food problem is one of reducing the trans-portation problems or relocating the food supply to insure adequate emergency supplies of food. The storage of wheat in areas with relatively low food supplies represents one of the means to achieve an adequate emergency food supply. Objectives of this study were: (1) to determine the quantity, composition, and geographic distribution of the food resources in the continental United States; (2) to estimate the cost of acquiring and transporting wheat from production areas to areas with relatively low food supplies; (3) to estimate the cost of maintaining a strategic commodity reserve in the respective storage areas; and (4) to consider and analyze alternative institutional and administrative arrangements to achieve the program goals. Linear programming was used to determine the costs of alterna-tive programs and optimum sources of wheat. Estimated 1970-71 long run competitive rates for storing and handling grain in inland terminals were used throughout the storage cost analysis. In the maintenance operations of the program alternative consideration was given to the possibility of rotating the wheat back through normal channels of trade or into livestock feed. Model I which would provide for the purchase and relocation of a three month supply of wheat for the total population involved the purchase of 614 million bushels of wheat. Total acquisition and trans-portation costs for Model I were approximately $1 billion. An average expenditure of approximately$1.70 per bushel was required to establish the program envisioned in Model I. On a per capita basis it cost $5.17 per person to acquire and transfer the wheat for a program which pro-vided a three month food supply in addition to the normal food supply. Total annual maintenance costs which included rotating stocks and storage and handing costs for Model I were$119 million. The average maintenance costs were approximately $.19 per bushel. On a per capita basis, it cost approximately$ .59 to maintain the reserve. Model II provided for the purchase and relocation of enough wheat to bring the combined normal and reserve food supply in all states up to six months. Approximately 49 percent of the continental United States population living in 19 s-tates were included in Model II, and approximately 296 million bushels of wheat were required to bring their food supply up to six months. Total acquisition and transporta-tion costs for Model II were $534 million. Average acquisition and transfer charges for the people involved were$5.42 per capita. Annual maintenance costs for Model II for rotating, storing, and handling the stocks were $70 million or$ .71 per capita. On a per bushel basis, average annual maintenance costs were approximately $.24. Model III provided for the purchase and relocation of enough wheat to bring the combined reserve and normal food supply up to three months. The population in 11 states representing approximately 23 percent of the continental United States population was included in Model III. Total acquisition and transportation costs for approxi-mately 37 million bushels of wheat were$65 million. An average expenditure of $1.37 per person was required to acquire and transfer the wheat for this model. Approximately 75 percent of the wheat stocks in Model III were located in the South and East storage areas. When the wheat was rotated into livestock feed, annual maintenance costs were approxi-mately$8 million or $ .18 per capita. The policy implications of a strategic commodity reserve are interwoven with the other basic problems of agriculture. For a program to be successful, it must be designed and managed as a strategic reserve and not as a part of the price stabilization program. Provisions for release of the stocks should be established in terms of national emergency criteria rather than market prices