Grain exporters should figure out how to work together
The soaring price of fuel this winter shows that by acting together, countries with little in common but the production of a commodity, can act to improve their situation.
The Organization of Petroleum Exporting Countries has a lesson for grain exporters.
OPEC and Mexico last spring engineered an agreement to reduce production by four million barrels a day, a small cut, only about five percent of daily world demand. Oil prices steadily gained momentum, eventually trebling in one year.
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We are all feeling the effect at the pumps now.
Back when OPEC made its agreement to reduce production, few believed the cartel would hang together long enough to make an impact.
Since its first great success in the 1970s when OPEC staggered the world by squeezing off its vital energy pipeline, the cartel has been unable to repeat the feat.
Its inability to consistently get all its members to conform to output quotas and an increase in oil production in the non-OPEC world, gradually made OPEC appear a paper tiger.
It was easy to see how divisions within OPEC could occur, given the membership Ð some Arab nations, Latin American and African countries, some rich, some poor, some feudal states, some democracies.
But then oil fell below $10 (U.S.) a barrel and the differences that separated were less than their common bond. They’d had enough.
One wonders when grain exporters will have had enough of grain surpluses and low prices.
If countries as diverse as Saudi Arabia, Indonesia and Venezuela can agree on supply control, surely such like-minded countries as Canada, the United States, Australia and Argentina could make a similar pact.
They did with varying degrees of success in the past, as recently as the 1960s.
Controlling grain production, with its reliance on the vagaries of weather, is a trickier business than simply turning on or off an oil pipeline spigot.
But with land set-asides and conservation programs, governments can affect production.
When the price of a single crop is down, farmers plant less of it and the supply-demand equation rights itself.
But when all crop prices are down, farmers ironically endeavor to produce more to try to make up in volume what they lost in price.
To address this surplus production, we could wait and hope for a massive crop failure somewhere, or we could act on a multi-nation basis.
OPEC did, and oil prices are three times higher now than they were 12 months ago.
