U.S. Grain Reserves Policy

Examines rationales for and against U.S. Government intervention in private grain storage, and simulates some of the costs and effects of intervention. Private storage activity already appears to be highly competitive. Distortions introduced by domestic agricultural policies and by a possible divergence between social and private discount rates are found to be insufficient justifications for government intervention. Stockpiling would not be anti-inflationary. The influences of grain stock policy on food aid policy and national diplomatic objectives constitute externalities that could justify intervention. We simulate the costs to world welfare, and the U.S. taxpayer of stabilizing grain prices through subsidization of private storage. Among other effects, price stabilization reduces U.S. export earnings. Most benefits from a government subsidized price stabilization go to consumers, particularly foreign consumers and meat-eaters. Price stabilization may raise or lower the mean price level; the resulting welfare effects could dominate the other effects of price stabilization.