A strategic reserve is a commodity held back by governments to stabilize prices or protect against shortage. Your mind may go immediately to the 35 million barrels or so of crude oil that the US has in storage, but there are all kinds of strategic reserves around the world. From cotton in China, to butter and wine in the EU, to the Global Strategic Maple Syrup Reserve, we talk about strange stockpiles (mostly food) and their effect on producers and consumers.
Buried beneath the earth in central Russia, squirreled away in former mine tunnels, sits a top-secret cache of cereals, sugar, canned meat, and other food staples. The site is considered a state secret; even the exact location isn’t known by anyone who doesn’t need to know it. We do know that the complex is vast, climate controlled, airtight, and nuke-proof. The facility also includes a laboratory, so that the food can be tested against the government’s nutritional standards, and the inventory is rotated on the regular, to ensure that none of it goes bad. Today, we’ll be focusing on stockpiles of sustenance, collections of commestibles, these funds of foodstuffs. My name’s Moxie and this is your brain on facts.
A strategic reserve is the reserve of a commodity or items that is held back from normal use by governments, organisations, or businesses in pursuance of a particular strategy or to cope with unexpected events. Your mind may go immediately to the 35 million barrels or so of crude oil that the US has in storage, but there are all kinds of strategic reserves, sometimes called stockpiles, throughout the world.
The rationing, deprivation, and economic collapse that were part and parcel to WWII affected the lives of Europeans so profoundly that the European Economic Community, a precursor to the European Union, began subsidizing farmers. Farmers have never been raking in the big bucks, even when the are outstanding in their field [rimshot], but they were no longer able to rely on it to support their families, especially on land pock-marked with those pesky bomb craters. Under-production was endemic to the 1950’s.
The Common Agricultural Policy was created in 1962 to pay guaranteed, artificially high prices to dairy farmers for surplus products. These products were then sold the European public for higher prices, causing a drop in sales. Attempts non-EU dairies to get in on these high sale prices were kiboshed by heavy taxes. A certain portion of products were stockpiled, to guard against crop failures, natural disasters, or in case someone got a wild hair and started WWIII. In 1986 alone, the EU bought 1.23 million tons of leftover butter. That’s 9,840,000,000 sticks of creamy saturated fat goodness.While this may sound like a dairy-lover’s dream, the general public was not so enthusiastic when word got out of what was termed the “butter mountain,” nor were they keen to learn they were paying inflated prices for their dairy goods. This program actually cost a lot of taxpayer money, almost 90% of the European Economic Communities entire budget. Even as recently as 2003, these payments are approximately half of the EU budget, even though farming is only 3% of the overall economy.
It still took until the ‘90s for something to be done about it, however. Instead of paying farmers for their unwanted butter, the EEC switched to paying them to not produce it. To move away from paying farmers guaranteed minimum prices for surplus goods, the government has shifted to paying to farmers so they won’t produce as much. While it seems counter-intuitive, it’s not uncommon for governments to pay farmers not farm. It’s been done here in the US since the 1930’s. Some of the prohibitively high import taxes were rescinded as well. In 2007, the butter surplus was liquidated, figuratively speaking. In 2009, however, the global recession did require some of the old policies to be reinstated. The EU claimed it was only a temporary measure that would result in a smaller butter reserve than before, a butter hill rather than a mountain. A grass-fed knoll, if you will. This was no magic butter, of course. Critics argue that farming subsidies in first-world nations hurt developing countries whose farmers can’t compete with the artificial prices. The 300,000 tons of butter the government bought cost taxpayers a whopping €280,000,000, or about a third of a billion dollars, and public pressure quickly rose to get rid of it again. As of 2011, a portion of the butter had been donated to the worldwide Food Aid for the Needy program. They don’t have this down pat, though. Changing medical views about fat are leading people to return to butter rather than vegetable oils or margarine, at a rate that’s outpacing production.
Oh, Canada, the great white north, full of polite people, ice hockey, geese, and maple syrup. There are worse reputations for a country to have. What a pleasant and wholesome thing maple syrup is, drizzled on pancakes on a sunny Sunday morning. It lands strangely on the brain to learn that there is a Global Strategic Maple Syrup Reserve. The Canadian maple syrup industry produces approximately 80% of the world’s pure maple syrup and is the leading global producer of maple products. The province of Quebec alone has almost 8,000 farms, producing, fulfilling 72% of the worlds sticky sweet needs.
Maple syrup is harvested from the sap of maple trees, shockingly, but the process is even more fickle than your average crop. Maple trees require nights below freezing and days that are in the low thirties but above freezing to relinquish their sap in useful quantities. If the nights are too warm or the days are too cold, production levels can vary wildly based on the weather. That isn’t good news if you’re trying to maintain a large-scale industry. It takes 40 units of sap to get one unit of syrup, though a long boiling process called sugaring off. Corporate buyers depend on a consist supply. Since 2000, the Federation of Quebec Maple Syrup Producers has been squirreling away barrels of surplus syrup in rich times, in preparation for poor harvests. The Federation’s warehouses have a capacity of 10 million kilos / 22.2 million pounds of syrup, or about two million gallons. Each barrel weighs about 620 pounds and commands a price of $1,650, almost 20 times the cost of crude oil.
Speaking of oil, some producers claim the Federation runs their operation like OPEC. Those producers who don’t cooperate with the quota system, those with the temerity to find their own buyers, are dealt with harshly. Small producer Angèle Grenier told reporter Leyland Cecco she will face criminal charges if she doesn’t stop selling to a private broker after the courts ordered her to hand her syrup over. She has three choices: give the Federation her syrup crop, face jail time, or shut down. “The federation’s goal by taking our maple syrup is that by taking our income, we cannot pay our lawyers,” says Grenier. “If one year we make 45 barrels, and the next year is a very good year and we make 60, we want to get paid for the 60,” she says. Once a producer fills the quota, the surplus, no matter how large, is retained until it is sold. That lag-time can run into years. According to Grenier, a neighboring producer is owed almost 100,000 Canadian dollars in unsold syrup. According to Al Jazeera America, a small Quebec producer described what happened to his family’s business: “The agent who came here to seize our syrup said, ‘If you were growing pot, we wouldn’t be giving you as much trouble.’
When an accountant went to inventory the barrels in the warehouse in Saint-Louis-de-Blanford, he was alarms to find a number of the barrels filled with water, while others were plain empty.
Because of the sheer volume of syrup, it would take two months to even determine how much was missing. About 60 percent of the reserve, worth about $18 million at that time, had been stolen. The thieves had rented space in the same warehouse and when the security guards were out of sight, siphoned the syrup from the barrels over the course of 11 months. A multi-agency search began. Hundreds of people were questioned and dozens of search warrants were issued. It took a year for the 26 people believed to be involved in the robbery to be arrested. About ⅓ of the syrup would never be recovered. The mastermind, Richard Vallieres, received an eight-year prison sentence, which will be increased to 14 years if he doesn’t pay $9.4 million in fines, the CBC reports. Vallières was found guilty of theft, fraud and trafficking stolen goods. His father, Raymond, and syrup reseller Etienne St-Pierre, have also been found guilty.
If you’re sat on the couch or stuck on the Tarmac, the great maple syrup heist is the topic of episode 5 of the Netflix documentary series Dirty Money. I haven’t seen it yet, so no spoilers.
A generation ago, most Chinese citizens ate meat so rarely that it only made up about 3 percent of their diet. China’s economy has grown by leaps and bounds in the last three decades, averaging over 10 percent growth per year. This has lifted millions of Chinese out of poverty and into the middle class, a middle class with a taste for, and the money to buy, more meat. China now consumes over half of the world’s pork, with each citizen eating about 40 kilograms / 85 lb of pork each year. In 2007, porcine reproductive and respiratory syndrome, commonly known as blue ear pig disease, killed 45 million pigs in China. The near-doubling of pork prices caused inflation throughout the economy. Panic buying had Chinese customers literally crushing each other to get scarce pork from supermarkets. The government became so concerned that they established a strategic pork reserve to stabilize prices. This includes both 200,000 tons of frozen pork and live pigs. When prices are too low, the government buys pork to make it scarcer and more expensive. When prices are too high, the government sells pork. In May 2016, for example, the stockpile came in handy when 6.1 million pounds of frozen pork were released in response to a price surge of more than 50%. This spike was a result of a shortage as Chinese farmers began giving up on raising pigs because of their such low profits, owing to the government keeping the price so low. These buying and selling moves are more for show than actually exerting influence on the market. The Chinese government can’t control enough pigs to affect prices significantly, but their decisions influence what people do.
This love of pork has consequence that reach far beyond the middle kingdom. China can’t produce enough grain and soy to feed the pigs, so it imports vast quantities that are grown on farmland made by clear-cutting the Amazon rainforest of Brazil and Argentina. Some plant species have already been destroyed wholesale. The grain must then be diesel-freightered across an ocean. The antibiotics added to this feed are creating superbugs among both animals and humans. The swelling population of pigs also means a lot of pig waste, enough that it separately contributes to global warming.
Speaking of swelling, my heart swelled the other day when I got this review on our FB page. Michael K. wrote: Tuesday mornings I wake up just a little earlier, am in just a slightly happier mood, and get settled on my train just a bit quicker . . . all so I can listen to the YBOF Podcast.
It puts me in a fabulous mood, and as a trivia buff I find myself thinking “I wonder if she’ll mention this? I wonder if she’ll include that??” And of course she does. And much, much more.
Thank you for making Tuesday morning the best morning of the week.
Because Michael left a review, his suggestion for a topic gets moved to the top of the stack, so look for an episode on priceless things that were destroyed in the process of preserving them in about two weeks. Thanks, Michael.
A recurring theme in today’s episode is best-laid plans backfiring like a ‘El Camino trying to run a yellow light. A few years ago, China had the biggest government stockpile of cotton in the world, holding soome 10 million tons, which is roughly 40 percent% of the world’s stocks. Officials thought that having that much cotton would allow them to control the market, but instead they backed themselves into a corner. The idea was that the stockpile would keep raw material prices low for their textile mills and help farmers as they bought the farmers’ cotton at a controlled price, often above the market price, which guaranteed the farmers a certain level of income. Just as with European butter, when the stockpile became too difficult to physically manage. While not as perishable as butter and milk, cotton has to be kept dry and is both an endless buffet and free real estate for insects and rodents. As the costs of the program began to outweigh the benefits, the Chinese government stopped buying cotton in 2013 and began making direct payments to their farmers to compensate them for lower market prices. What are they to with the actual cotton, thought? The cotton was purchased at artificially high prices, which means they’ll automatically lose money when they sell at the market price. The more they sell, the lower that market price will go, thanks to ye olde supply & demand, and the loss on each bale will be greater.
China isn’t the only nation that’s flush with fiber. India, the world’s second largest producer of cotton between China and the US, has relied on textile manufacturing for millennia. Fabric and garments comprise up 11% of India’s exports, of which 60% are cotton. In 2012, the state-run Cotton Corporation of India was created and amassed about 2.5 million bales of cotton, to ensure raw material supplies to mills and help stabilise prices in times of shortage.
Cotton is more profitable as a crop than rice or vegetables, so many farmers shifted to growing it exclusively. The side effect of this is that they must now buy food they used to grow. Farmers also shifted to modern farming practices, including an increasing dependency on synthetic pesticides. However, they often find themselves without recourse in the face of increasingly-resistant insects devouring the plants. There are programs to educate growers about traditional plant-based pesticides, but for many it’s too little, too late. They’ve been spraying increasing amounts of pesticides without protective equipment for years. Prices are low and harvests down. Add in more frequent droughts, demands by foreign markets for cheap-as-possible products, and a growing cotton industry in Africa, and their situation becomes truly precarious.
It’s easy to say “that’s a shame about the farmers” and go on with the rest of your day, but the situation in India is particularly dire. According to an RT documentary, 290,000 Indian cotton farmers have committed suicide in the past 20 years. In Maharashtra state in 2016 alone, there were 900 suicides by cotton farmers. I’m sad to say the cotton farmers have company. Suicide rates among Indian sugarcane farmers has also spikes, as the price of sugar remains low due in part to the world’s sugar stockpiles. Despite reduced production of sugar and ever-increasing demand, the surplus remains high. Ironically, but not surprisingly if you’ve been listening, a major cause is the government-subsidized stockpiles of 86 million tons of sugar, which was supposed to hold prices steady and increase raise incomes for farmers. Sadly, it backfired. Sugar prices have also been hurt by low oil prices. Lower oil prices draws focus away from ethanol, the alternative fuel made from sugar crops. The US and China have had government stockpiles of sugar for years, though China has been considering phasing its reserve out in recent years.
I’m going to bring the mood back up with three words you’ve never heard together, national raisin reserve. That’s right, raisins, those polarizing wrinkly former grapes. While most stockpiles are created to protect against shortage, the National Raisin Reserve came to be for the opposite reason. We were up to our epaulets in raisins, apparently. During World War II, both the government and civilians bought raisins en masse to send to soldiers overseas, as a sweet, shelf stable taste of home. Increased demand led to increased production, but when the war ended and the care packages stopped, the raisin market was flooded. In 1949, Marketing Order 989 was passed which created the reserve and the Raisin Administrative Committee to oversee it, under the supervision of the USDA. The Committee was empowered to take a varying percentage of American raisin farmers’ produce, sometimes almost half, in an effort to create a raisin shortage and artificially drive up the market price. The reserved raisins didn’t go to waste. Much of it was used in school lunches, fed to livestock, or sold to other countries. If the raisins were sold, the profit was supposed to be shared with the farmers, but those monies could easily be eaten up by operating expenses, leaving nothing for the people who actually grew the grapes.
This program stayed in place, business as usual, for 53 years, until 2002. That’s when farmer Marvin Horne decided that he would rather sell the product he had grown and processed instead of giving it away to the government. The government took exception to this idea. Private detectives were dispatched to put his farm under surveillance, then trucks were sent to collect the raisins. When Horne refused to let the trucks on his property, he was slapped with a bill for about $680,000, the value of the raisins plus a penalty. Not one to roll over that easily, Horne sued the government, claiming the forced forfeiture of his crop was unconstitutional. For years, the case was volleyed from one court to another. Eventually, it appeared before the U.S. Supreme Court, not once but twice. The first time was to settle the issue of jurisdiction. Justice Elena Kagan suggested that the question was “whether the marketing order is a Taking or it’s just the world’s most outdated law.” The second time was the core issue – was the seizure of raisins a violation of the Fifth Amendment, which prohibits the government taking personal property without just compensation? In 2015, thirteen years after the farce began, the court ruled 8:1 in favor of Horne: For seizures to continue, compensation would have to be paid, that the confiscation of a portion of a farmer’s crops without market price compensation was unconstitutional.
While many growers supports Horne in his efforts, even contributing to his legal fees, not everyone thinks of him as a champion of the little guy. Some who followed the government’s orders while Horne defied them resent him for it. “I lost a lot of my land, following the rules,” said Eddie Wayne Albrecht, a raisin grower in nearby Del Rey, Calif. He lost so much money in turning in as much as 47% of his crop that his farm, once 1,700 acres strong, is now only 100 acres. “He got 100 percent, while I was getting 53 percent,” Albrecht said. “The criminal is winning right now.”
What’s happening with the raisin reserve now? The Agriculture Department could abolish it, but they have only hit pause on it, saying “Due to a recent United States Supreme Court decision, [the Volume Control] provisions are currently suspended, being reviewed, and will be amended.” At least that means that in the meantime, no more raisins should be put into the reserve and farmers are free to sell what’s theirs.
Bonus fact the first: Golden raisins aren’t dried white grapes. Both regular and golden raisins are made from the same kind of grapes, but with slightly different processes. Bonus fact part deux: There’s a gym complete with basketball court on the top floor of the US Supreme court that only the those employed in the building can use. It is referred to, naturally, as the highest court in the land.
When customer tastes change, businesses need to change their offerings to keep up. It’s no good doubling-down on shag carpet and bell bottoms in 1981 and hoping people start buying again. Unless, that is, you were making wine in an EU country. Then, the government would have paid you to store your unwanted product in a strategic reserve called the “wine lake.” People weren’t buying win the way they used to. In the middle of the last century, France averaged a healthy 117 liters / 30 gallons of wine consumption per capita annually. Italy eeked past that with 120 liters / nearly 32 gallons of wine a piece. By the coming of this decade, French consumption had dropped by nearly half and Italy by two thirds. Why weren’t people buying from these historic powerhouses? American vineyards had started proving their mettle, both in quality of product and marketing prowess. It was no longer an faux pas to be seen drinking California chardonnay or Australian shiraz. The global recession didn’t help anything, with wine becoming a luxury for many people rather than a staple. In France and Italy particularly, an overproduction of grapes sent supplies soaring and prices crashing.
In addition to subsidies equivalent to $1.7 billion per year, the EU had a clever solution. The government purchased the vineyards’ lower-quality grapes for what it called “crisis distillation,” turning the grapes into industrial alcohol and biofuels, rather than for drinking. This was supposed to restore equilibrium to the market. There is a ‘but’ coming and I don’t mean the 126 gallon vessels of wine traditionally referred a butt. (Be sure to point that out to your friends in sceptical superiority next time they say they drank a buttload over the weekend.) The subsidized growers kept on producing unwanted grapes to keep that income flowing, which kept the wine lake spilling over its metaphorical banks. To reverse this, in 2008, the government tried a new approach called “grubbing up,” which paid growers to dig up vines and abandon fields of surplus grapes. It also shifted its focus and its funds from buying surplus grapes to marketing European wines overseas. The tide shifted and in 2013, there was a brief shortage of wine, but the surplus returned a year later. In 2015, all of the previously enacted programs were slated to be phased out. Discontinuing the programs that were controlling the surplus seems counter-intuitive, but the logic is straight-forward: without layers of safety net, wineries will responsible for their own excesses, whether that’s storing them or paying to dispose of them, so they’ll be less inclined to produce more than they think they can sell.
There are a few commonalities in the strategic reserves we’ve talked about. These kinds of reserves used to be more common, but they don’t work as planned, and have begun being dismantled in the last twenty or so years. Reserves are expensive to maintain, and countries that could afford them can usually import their way out of a shortage. Poor countries can’t afford either, leaving them vulnerable when harvests fail and food prices rise. The new thinking is that global trade will naturally distribute harvests more efficiently. It’s hard to say if that’s true in a world where one billion people are hungry and one billion are obese, and more than a billion tons of food are wasted each year.
And that’s where we run out of ideas, at least for today. A mass rainy day fund for food isn’t entirely without merit. In 2010, Joachim von Braun and Maximo Torero of the International Food Policy Research Institute outlined an anti-food price speculation device they called a “virtual reserve.” They proposed that an international institution, like the UN World Bank, would be responsible for managing a “fund,” consisting of specific dollar value commitments from grain-producing countries. If grain prices started to rise above a certain point, the fund could call in those commitments to be able to make short sales on the futures market, which would, in theory, bring spot prices down and drive speculators out to stop things from spiraling out of control.
Music by Kevin MacLeod and sound effects from freesound.org.
¿Donde es la bibliography?: