Food storage, multiple equilibria and instability: why stable markets may become unstable during food crises

A temporary-equilibrium model replicating institutional features of low-income agricultural economies is developed. In this model, food is held as an asset; because food production is relatively volatile, those with negative temporary income are net buyers of food. When food is the only asset, asset effects are likely to reduce the price-elasticity of the demand for food and can make it tatonnement-unstable, because the distributional effects of food price rises increase savings. When money is introduced, instability remains possible because a permanent rise in the price level increases risk, inducing substitution from money into food stocks. JEL numbers D51 (exchange and production economies), D52 (incomplete markets), Q11 (aggregate agricultural supply and demand), Q12 (macroeconomic analysis of farms)