FOOD COSTS AND THE 1988 UNITED-STATES DROUGHT - AN ASSESSMENT OF STOCK POLICIES

Alternative government stock policies are evaluated in terms of their effects on the US livestock sector and consumer food prices before and after the 1988 drought using a comprehensive model of the US agricultural sector. Stock levels associated with the Food Security Act of 1985 (FSA85) are compared with those of a reduced-stock policy. This option reduced government corn stocks to zero and lowered overall stocks by almost 2 million bushels prior to the drought, saving taxpayers about $15 billion compared to the observed level of spending associated with FSA85. However, consumers were projected to spend almost $40 billion more following the drought in higher food (particularly meat) costs because of the dramatic shock lower corn stocks would have on corn prices and the livestock sector.