The Political Economy of Food Price Policy in Zambia
The Political Economy of Food Price Policy in Zambia
Abstract and Keywords
The global food price crisis of 2007–8 raised fears about the impacts of higher and more volatile food prices for the poor in Zambia. Like in the past, the implementation of the strategies to deal with the rising food prices, especially for the staple crop maize were delayed due to ineffective response policies, mistrust between government and private sector, protracted discussions, inaction amongst key agriculture stakeholders and rent-seeking behaviour by some. Using the political economy framework, this study examines how the country responded to the 2007/08 global food crisis and the lessons learnt for dealing with future food crises.
Like many countries in the world, ensuring food security is at the centre of Zambia’s agriculture policy. Unstable and high prices for food staples such as maize, wheat, and rice have severe economic, social, and political consequences.1 The global food price crisis of 2007 and 2008 raised fears about the impacts of higher and more volatile food prices for the urban and rural poor in Zambia.
Recent large price swings for the major staple food, maize, reinforced the general perception that food prices are far too strategically and politically important to be left to the market. They may expose poor farmers and consumers to unacceptable price spikes and collapses (Chapoto and Jayne 2009). Rapidly increasing retail prices for maize meal triggered food riots in Kitwe, a mining town in the Copperbelt province, which pushed the government to take action and attempt to respond to the global food crisis of 2007 and 2008.
The policy response strategies were similar to those used in past drought-induced food crises including an immediate maize export ban/restriction without looking at implications on regional trade; agreement on the quantity of maize to be imported, and how much each of the different stakeholders should import; request for import duty waivers from the Ministry of Finance and National Planning (MoFNP), and the provision of subsidized maize grain to millers for onward transmission to consumers. The outcome of using this package was not effective in solving the crises because the agreed (p.175) implementation plan was fraught with problems. With the existing high levels of mistrust between government and the private sector, opposing self-interests among the key interest groups and some vested interest amongst certain individuals in both the public and private sector led to inertia in dealing with the problem.
While the causes of past global food crises have been studied, there is little knowledge of the policy processes and the related political economy issues. A few studies have helped to catalogue events and responses in the country, for example, Govereh (2009), Chapoto and Jayne (2009), and Jayne et al. (2009). These studies outlined in detail the timeline of events and responses although political economy issues were not at the centre of the analyses. International non-governmental organizations (NGOs) in Zambia also helped to raise awareness of the likely impact of the global food price crisis on the poor and vulnerable households by outlining how they were positioning themselves to respond to the impending crisis. Unfortunately, most of their reports or analyses were done at the height of the global food crisis and tended to overstate the crisis and its impact since their main focus was to attract funding to support their humanitarian efforts in the country. On the other hand, press reports covering the local food price crisis tended to be driven mostly by what was going on outside of Zambia. This failed to take into account local conditions and political economy issues pertaining to the government responses to the impending crisis. The local media started to pay more attention to the domestic situation only after the crises had deepened.
This country study uses political economy analysis framework to better understand how the Zambian government responded to past food price escalations with special emphasis on the most recent global food crisis. Indeed, Zambia saw price escalations of wheat, rice, and soybeans in 2007 and 2008, whilst maize prices rose in 2008 and 2009. Maize, as the main staple crop, continued to attract the most attention from the government, hence the response strategies focused on maize grain and maize meal.
8.2 Country Context
Despite the rapid growth of gross domestic product (GDP) in the past decade, poverty rates in Zambia remain very high at about 60 per cent of the population. General economic growth has not reduced poverty (Tembo et al. 2010; Chapoto et al. 2011). Addressing high rural poverty rates remains a government priority in the national development programmes, but solutions have proven elusive. The main impediment is not simply a lack of technical knowledge concerning what needs to be implemented, but realizing that such knowledge cannot be translated into action unless the policy process is (p.176) capable of allocating scarce public resources in ways that reflect this knowledge. Chapoto et al. (2011) argue that political economy and associated governance problems are increasingly recognized as crucial.
Like most countries in Africa, white maize in Zambia is a strategic political crop. After independence, maize became the cornerstone of an implicit and sometimes explicit ‘social contract’ between the government and the Zambian people (Jayne and Jones 1997). The social contract meant that the government had to ensure that smallholder farmers received higher producer prices whilst consumers accessed cheaper food. To achieve these two opposing objectives, the Zambian government adopted a controlled marketing system, run by the government’s National Agricultural and Marketing Board (NAMBOARD) and later through the Zambia Co-operative Federation until the system became financially unattainable (Govereh 2009; Tembo et al. 2010).
With market liberalization in 1991, the government of Zambia stopped subsidizing production and consumption of maize, immediately causing the prices of basic food commodities including maize to sharply increase. Consumers resorted to rioting, so food pricing policy became highly politicized under the new multi-party democratic system. Due to this pressure, the Movement for Multi-party Democracy (MMD), the political party that was in government, decided to revert back to some government controls on the food market. This resulted in the establishment of the Food Reserve Agency (FRA) in 1996. Unlike its predecessor, NAMBOARD, which was the sole buyer and seller of grain in the country, FRA was originally conceived to hold buffer stocks to dampen price variability and, when necessary, provide liquidity in the maize market during the initial years of market liberalization while the private sector was establishing itself (Jayne and Jones 1997). Due to the recurring drought induced food crises, the government through the FRA decided to increase its participation in the maize market via state restrictions on the private export of maize, and unpredictable changes in trade tariff rates, quantities traded, and prices offered and paid by FRA. Ostensibly, these state activities have been in response to perceived failings of the private sector to provide reliable markets and stable prices for smallholder farmers’ surplus maize production (see Nijhoff et al. 2002; Chapoto and Jayne 2009; Tembo et al. 2010).
8.2.1 Key Decision Actors in Food Policy Issues
Food policy in Zambia is formulated at both the technical and political level. During the food crisis, the policy-making process was overwhelmingly dominated by the political level. Technical operatives had limited input into the (p.177) decision-making process. The major stakeholders, farmers, and millers had direct access to policy makers at very high levels.
The executive branch of government comprises cabinet ministers and is chaired by the president of the Republic of Zambia. The secretary to the cabinet is the head of the civil service and ultimately all policy positions that originate from ministries pass through his/her office. Each ministry is responsible for generating its own policy positions which are submitted to the permanent secretary, and finally to the minister for approval. Once approved, the documents are sent to the policy analysis and coordination section in the secretary to the cabinet’s office. After approval, the cabinet memorandum is finally sent to the cabinet for debate and approval.
Ultimately, all power in the cabinet is vested in the head of State. Although a minister can lobby for policy change, his/her limits are set by policy statements made by the political party in power. For example, during the food crisis of 2008 and 2009, the executive branch did not openly veto any policies but in most cases the aspirations of the political party in power and recommendations of lobby groups with access to the cabinet were prioritized. Also, the fact that the minister of agriculture is a member of the cabinet meant the executive branch was briefed about the situation and considered recommendations coming from various stakeholders. The policy responses that were chosen tended to ignore the technical input from the relevant ministry or research organizations in favour of input from very powerful interest groups.
Zambia’s parliament has an oversight role on government policy implementation, although some of the issues not requiring changes or enactment of new laws are dealt with at cabinet level and not taken to parliament for ratification. However, from time to time, the parliamentary committee on agriculture, for instance, makes requests for briefings and updates on various policy implementation issues. One of the major weaknesses of this system is that a policy can be radically changed by the cabinet disregarding technical input. This is especially crucial given that powerful interest groups often directly lobby cabinet members.
The main policy tools that are at the disposal of Ministry of Agriculture and Livestock (MAL) include: issuance of import and export permits based on the crop forecast results; stock monitoring through the stocks committee; recommendations to the cabinet on the level of market participation by FRA; and dealing with plant and phyto-sanitary matters and the issuance of appropriate importation and exportation clearance for agricultural commodities. Cross-border trade policy is administered through the Zambia Revenue Authority, which has the mandate to manage all customs functions with MAL’s phyto-sanitary officers stationed at most of the major borders. Internal marketing policy is generally implemented through FRA.
(p.178) Recently, the maize monitoring committee chaired by MAL permanent secretary was transformed into the stocks committee, an inter-ministerial and private sector technical body that routinely meets to discuss the national food security status (stocks), specifically focusing on the major cereals, maize, wheat, and rice.2 Although transparency is often emphasized in dealing with food crises, the decision-making is characterized by high information asymmetry amongst major stakeholders. For instance, Millers Association of Zambia (MAZ) does provide consolidated information on stocks held by its members. However, competition amongst the individual milling companies means that they are often very hesitant to share accurate stocks information even to the association. This makes policy-making very difficult. For instance, in December 2009, millers reported lower than expected stocks. But, when the government offered a price subsidy to millers, the reported quantity of available stocks increased significantly. The lack of transparency among the players in the milling industry is partly due to the way the industry is organized. Due to the high cost of credit in Zambia most mills are not able to keep significant inventory of grain for processing. The implication of this has been that mills with the highest inventory are able to influence the market prices more than mills with lower inventory. Consequently, inventory information is a very closely guarded secret. This has proven to be one of the biggest challenges in the grain market decision-making process. In years of cereal deficits, inventory information is also used by the milling industry to lobby government for intervention; this introduces considerable issues of information asymmetry.
The two biggest interest/lobby groups in Zambia are the Zambia National Farmers Union (ZNFU) and Millers Association of Zambia (MAZ). The Grain Traders Association of Zambia (GTAZ) has increasingly gained some prominence over the last five years or so. However, the organization has very limited membership and the wide scope of consumer issues has made the association relatively less effective when dealing with specific food policy issues. Other lobby groups include the Zambia Consumer Association (ZACA) and the Jesuits Centre for Theological Reflection (JCTR). ZACA has been in existence since 2000 and is supposed to be the major advocacy group representing consumers instead of MAZ when it comes to maize meal prices. JCTR has (p.179) been instrumental in highlighting issues affecting the poor in the country via their monthly consumer bulletin. However, they do not carry the same influence as the ZNFU and MAZ.
The ZNFU represents the interest of farmers with members drawn mostly from the commercial farming sector. Although the membership of the union is not publicly announced, the total number of large-scale agriculture holdings in Zambia numbers no more than 2000 (MAL 2011). On the other hand, the country has over 1.5 million small- and medium-scale agricultural households who can become members of the ZNFU through any small-scale farmers’ associations.
Generally, ZNFU is very vocal on pricing and trade issues for the staple grains (maize, wheat, and soybeans) and inputs (fertilizer, fuel, and electricity). With the exception of maize, which is mostly grown by the smallholder farmers, the union is very active on issues that address the commercial farming sector in the country. Some critics from the peasant farmers association think that ZNFU does not fully represent the interests of the small-scale farmers because it was formed initially to represent commercial farmers. Their argument is that issues of the small farming sector are more complex and require different lobby mechanisms. ZNFU’s agenda for the small-scale farmers has been to fight for higher maize producer prices and more fertilizer subsidies under FISP. Unfortunately, the union chooses to ignore the empirical evidence regarding maize production and marketing characteristics of smallholder farmers and facts about the effectiveness of the government entitlement programmes in terms of resource use and effect on overall agriculture development, especially when these subsidy/entitlement programmes result in under-funding of the key agriculture drivers, such as irrigation, roads, and research and development.
The second most influential lobby group is the MAZ, a self-financing association formed to represent millers in Zambia with a production capacity of 1.5 metric tons per hour or more.3 Since 2001, MAZ has increased its influence on maize issues in Zambia through its ability to influence government’s policy on maize and maize meal prices during food crises. The association has long been plagued by allegations of collusion in price setting. These allegations have always been denied by the association. During the past food price crisis, MAZ was able to convince government to intervene by allowing FRA to sell subsidized grain to them in order to reduce the consumer prices.
(p.180) Donors and cooperating partners in Zambia are important in providing assistance to the Zambian government whenever there is a food crisis especially by helping to finance food aid importation for vulnerable groups. However, in most cases, the donors’ role in the agricultural sector has mainly been limited to an advisory one through the Troika (World Bank, Netherlands, and United States). During the food crisis, Food and Agriculture Organization of the UN (FAO) funded a number of meetings to encourage stakeholders to discuss how to deal with the global food prices.
8.2.2 Past Food Crises, Price Trends, and Price Transmission
In the past decade, Zambia has experienced four episodes of food crises, in 2001–2, 2002–3, 2005–6, and 2008–9 marketing seasons. The first three episodes were caused by severe drought conditions in the country. Zambia’s agriculture is mainly rain-fed, so crop production in the country is vulnerable to weather shocks.
Lessons Learned from Past Food Crises
Zambia has not learned from past experiences how to plan and quickly respond to food crises. With similar and less successful response strategies in the past, one wonders why the government in collaboration with the relevant stakeholders does not put together a standard operation strategy on how to deal with future food crises. The answer lies in the political economy surrounding food issues in the country, a subject that is central to this study.
The common characteristics of the past food price crises that hinder the successful implementation of the agreed upon plan are as follows:
1. The government through MAL has always been open to the stakeholders’ input before the onset of a food crisis. However, the execution of the agreed plan is fraught with problems resulting in the crisis worsening before serious action is taken.
2. A high level of mistrust exists between the government and the private sector. The private sector seems to be always uncertain about government actions especially regarding imports. This is because the government has in the past sanctioned the FRA to release its stocks at subsidized prices to a few selected millers hurting traders and/or millers who would have imported maize.
3. Once the alarm bell is sound through the crop forecast and national food balance sheet about an impending crisis, the government always imposes ad hoc export restrictions/ban. The effectiveness of such a response is highly contended because informal exports will continue (p.181) to flow out of Zambia illegally. Also, ad hoc export bans have made the country become an unreliable regional grain supplier thereby curtailing the growth of the private sector participation in regional trade.
4. The refusal and delays to grant duty waiver requests by the MoNFP shows lack of inter-ministerial dialogue with the MAL and other related government agencies, especially when the country requires them to respond quickly to a food crisis.
8.2.3 Policy Responses to the 2007–9 Global Food Crisis
Policies in response to the rising food prices in 2008 and 2009 fall into three categories: trade-oriented, consumer-oriented, and producer-oriented policy responses.
Export restrictions/ban: The food security update by FEWS NET at the end of December 2007 reported localized maize and maize meal price escalation in some parts of the country especially the flood ridden southern province. In January 2008, Zambia like Malawi and Tanzania imposed export bans as a safeguard from likely shortfalls and to curb further food price increases. There is no evidence that this was done in a coordinated way. Each country was trying to protect itself from the looming food crisis triggered by the global events. This response was a result of the continued pressure from politicians, consumer groups, and press reports warning the government to respond to the impending food crisis due to floods and the global food crisis.
Maize export restrictions are a common feature in Zambia and date back to the 1960s. Whenever the country experiences a maize production deficit, export ban/restrictions through the non-issuance of export permits is invoked. Since the region has the same growing season, a drought in Zambia usually means a drought in most of the neighbouring countries. Therefore, the decision to restrict exports is made out of fear that the millers and traders in search of higher prices will export most of the local stocks thereby exacerbating the food problem. Unfortunately, such restrictions have not worked well in the past because any ban requires strict policing, something that is not possible in Zambia, a country sharing borders with eight countries. Illegal exports tend to increase during this time and are hard to detect and the treasury forgoes revenues from export taxes. When the situation improved, there was a delay in lifting the ban because the government feared public backlash.
At a meeting held on 25 July 2008 between the government and the agriculture stakeholders and chaired by the Minister of Agriculture, MAZ, GTAZ, and ZNFU disputed the national balance sheet for maize grain announced in May 2008 indicating a surplus of 200,000 MT for the 2007/8 agricultural season. They argued that the annual maize consumption of 50,000 MT was understated given the growth of the breweries and the stock feed sector. At this meeting, the FRA declared having maize stocks amounting to 150,000 MT, MAZ, 55,000 MT, and GTAZ, 25,000 MT. From these stocks, it was ascertained that precautionary measures needed to be taken by the private sector through buying futures on South African Futures Exchange (SAFEX).
However, given past experiences when government through FRA released stocks on the market to selected millers at a time when private sector imports were just hitting the market, traders wanted guarantees from government that this was not going to happen. On the other hand, the farmers wanted to make sure that maize imports by traders did not disadvantage local farmers who were still selling their maize. All parties agreed to have a memorandum of understanding (MOU) drawn up and signed by all parties.
As a requirement, the MAL had to send the draft MOU for vetting by the Ministry of Justice. Unfortunately, the Ministry of Justice indicated that two clauses included in the MOU were not favourable to the government. In particular, the clause that would allow the private sector to re-export the maize if at the time of importation there was enough maize in the country. In addition, traders wanted an import duty waiver. Unfortunately, the latter was outside the jurisdiction of the MAL but required the MoFNP to make a ruling. The idea of the private sector locking into contracts on SAFEX was abandoned. In the meantime, as these discussions were progressing, maize prices were increasing and the ZMK had lost ground to the US$—from 3,500 ZMK to 5,000 ZMK (Figure 8.1). This meant maize imports were going to be more expensive, irrespective of who the importer was going to be—government or private sector. The private sector requested the MoNFP to peg the exchange rate at July rates of US$1 to 3,500 ZMK to facilitate their maize imports. However, this request was also not granted.
In October 2008, there were reports of a food riot in the Copperbelt province targeting retail shops because of the high prices of maize meal. This was a wakeup call for the government to effectively deal with the rising food prices. With maize meal outlets targeted, the government’s concern was to find immediate solutions to quickly reduce maize meal prices and re-engage stakeholders on the issue of maize imports.
As of November 2008, neither the government nor the private sector had arranged to import maize and maize stocks held by FRA, MAZ, and GTAZ were reported to be 208,000 MT in mid-November, a 16 per cent decrease (p.183) from 250,000 MT in July. The retail maize prices were now in the range of US$350 to US$400 per MT compared to US$176 per ton on the SAFEX exchange. Maize prices had risen above the import parity price from South Africa.4 On 24 November, 2008 a select committee of cabinet ministers mandated the FRA to urgently import 100,000 MT of maize wherever it could be found. This was an indication that the decisions about the food crisis were now being made by the president’s office.
As the FRA arranged to import this maize, there were reports of increased local maize stocks and the traders were calling for the government to stop purchasing more expensive stocks from outside since they had enough stocks locally. According to the grain traders, maize stocks that were pre-contracted to millers and not included in the uncommitted stocks was now available on the market since millers were now getting subsidized maize from FRA. Also, millers who were not members of MAZ challenged the stocks that MAZ reported to the stocks monitoring committee in July as they were never consulted. After further consultation the government revised its import requirements to 35,000 MT.
On 5 December 2008, the Minister of Information and Broadcasting Services and chief government’s spokesperson, General Shikapwasha, (p.184) announced at a press briefing that the government had set up a high-level task force to deal with the rising food crisis. This committee was different from the technical committee that was set up at the onset of the crisis. The task force was to be chaired by the Minister of Agriculture with a mandate to urgently come up with a national action plan to deal with the situation. This marked a turning point in how the country was going to deal with the escalating food prices, in particular maize meal.
To cushion consumers from the rising maize meal prices, the government after meeting with stakeholders decided in December 2008 to subsidize maize grain to millers, requiring them to pass along lower maize meal prices to consumers. FRA was to release 30,000 MT of maize per month for four months to selected millers at US$275 per MT, and millers would then blend an equivalent amount of commercial stocks at market prices that ranged between US$410–420 per MT. The millers would then guarantee a low retail price of 53,000 ZMK per 25 kg bag instead of the market price of 65,000 ZMK per 25 kg. Unfortunately, retail maize prices remained above the 53,000 ZMK mark, so the government reconsidered its position and unilaterally decided to release 100 per cent subsidized stocks at US$220 per MT to be processed into maize meal without blending with commercial stocks. This meant FRA had to double its supply per month to 60,000 MT. Since FRA stock releases were inadequate to cater for millers’ requirements, the government was compelled to sign a legal instrument to procure the maize stocks held by the millers at a price of US$385 per MT and releasing the maize at a price of US$220 per MT in December 2008. This innovation also failed to influence countrywide maize meal price reductions. Worse still, not all millers were able to access the cheaper maize provided by FRA and thus could not reduce their prices (Tembo et al. 2010). At the same time, there was a big outcry from grain traders who were now failing to sell their more expensive stocks. After protracted negotiations, FRA agreed to purchase 70,000 MT of maize from the traders in two parts, 40,000 MT at the time of signing the agreement and 30,000 MT in March 2009 at a price of US$405.95.
The release of subsidized maize grain to selected large-scale millers with a guarantee that they would in turn reduce maize meal prices by 23 per cent from 65,000 ZMK to 53,000 ZMK, did not work well. With the continued price escalation, the press and other stakeholders began to blame the millers. The Minister of Agriculture threatened to push for the removal of the subsidy to millers as the programme was not benefiting the consumers. On the other hand, millers were threatening to increase maize meal prices if this happened. Eventually in March 2009, the government reduced the subsidy rate from 50 per cent to 40 per cent with maize meal prices remaining very high.
(p.185) The upshot of these results is that the government of Zambia needs to seriously review its policy of providing consumers with price relief through subsidizing maize grain to a few large-scale millers. As in the past, this policy has failed the country, although general subsidies are easier to implement, but they fail to meet their goal of reducing prices; instead they distort the market and the big winners will be those millers who are able to access the subsidized grain. The government should have offloaded maize to the open market so that the poor consumers had access to low cost maize that could have been milled cheaply at local hammer mills as well as other small-scale mills (Chapoto and Jayne 2009).
Input subsidy: The main government response to the food crisis of 2008 involved mostly supply-side policies. These included ramping up FISP, targeting more smallholder farmers. A major reason for focusing on supply-side interventions is that the support base for the then ruling MMD party overwhelmingly comprised rural farming households. After the death of President Levy Mwanawasa in August 2008, fertilizer subsidies and higher maize producer prices became a campaign issue during the elections to replace him. Results from a study by Mason, Jayne, and Myers (2012) shows that the amount of fertilizer distributed was highly correlated to the election outcomes.
Since 2001, Zambia has provided smallholder farmers with subsidized fertilizers. With the rising food and fertilizer prices in 2007, the government increased those subsidies. Initially, farmers eligible for subsidized fertilizers were required to pay only 50 per cent of the fertilizer market price but were now required to pay only 25 per cent. In February 2008, the Zambian parliament approved the 2008 budget with a planned spending of 187 billion ZMK for fertilizer subsidies (approximately US$42 million). Two months after the budget was approved, fertilizer prices further increased by more than 60 per cent compelling the government to seek an additional 305 billion ZMK (US$68 million) to cover the increased procurement costs. The total expenditure on fertilizer subsidies released from the 2008 budget amounted about 33 per cent of the total amount spent by the whole Ministry of Agriculture. In addition, the number of beneficiary farmers increased from 120,000 to 200,000. However, the implementation of the FISP programme continued to suffer from corruption, poor delivery, poor targeting, leakages, lack of training, and absence of monitoring and evaluation. The elite argue for the continuation of the fertilizer programme through government procurement and distribution via a handful of preferred companies that have a track record working with the government. The resistance to reform the programme is likely driven (p.186) by the vested interest of people who derive personal benefits from the programme. Research has recommended the use of an e-voucher to deliver the subsidy, thereby eliminating the need for government to tender and distribute inputs while including the private sector and encouraging competition.
Producer price support through FRA: With the continuing desire to promote smallholder maize production, the government through FRA buys all its stocks from the smallholder farmers at prices above the market price. This is mainly due to pressure exerted by ZNFU and members of parliament. Unfortunately, this policy only benefits about 35 per cent of small-scale farmers with the top 2–5 per cent of the well-endowed farmers benefiting the most because they are able to sell 50 per cent of all the marketed maize. In 2008 and 2009, there was extensive political pressure for FRA to announce its floor price even before the crop forecast and the national food balance sheet were announced by the Ministry of Agriculture. This was due to the allegations that millers and traders were ripping off farmers by buying maize early at below market prices.
In June 2008, the FRA announced a buying price of ZMK 45,000 per 50 kg bag (about US$260/ton), an increase of 16 per cent from the previous season. On the other hand, anticipating higher returns later in the year due to the global food crisis, millers, and other private players started the 2008–9 marketing season by aggressively buying maize at a price higher than FRA floor price, something that was uncommon at that time of the year. FRA tried to counter this by raising its price to ZMK 55,000 per 50 kg bag (about US$304/ton) but due to the tight maize supply in the market, they failed to reach their target of 88,000 MT. Instead FRA managed to procure only 72,000 MT at the end of an extended buying season in October 2008. The argument for raising the FRA purchase price above market price in a deficit period was that smallholder farmers needed this incentive to keep producing maize for the country to remain food secure. Figure 8.2 shows an increase in maize and maize meal prices attributed to the stiff competition between the private sector and FRA as well as from some smallholder farmers holding grain off the market in anticipation of higher prices later in the season (FEWS NET 2008).
Tax changes: Some of the tax proposals made by the high-level task force were adopted in the 2009 budget. In order to promote agriculture production through mechanization, the government, through the national budget of 2009, announced that all agricultural equipment including small tractors, ploughs, pumps, and sprayers would be free of VAT. The tax policy changes were intended to reach the small- and medium-scale farmers. Also, the 25 per cent duty on gypsum imports was scrapped in order to promote local fertilizer production. With the rising transportation costs due to the rising fuel costs, the government also removed customs duty on commercial trucks. (p.187) The impacts of these measures have not been subject to any scrutiny but it is reasonable to assume that they would support the agriculture sector to better withstand production shocks.
8.2.4 Relationship between World Food Prices and Zambia Food Prices
Results from price transmission models showed that that there was no statistically significant long-run relationship between local maize prices and the US Gulf freight on board (FOB) maize prices and South Africa, SAFEX maize prices. This may not be very surprising because Zambia is a landlocked country that has in the recent past been able to produce maize surpluses and only imported maize from South Africa in drought years. The caveat to this finding is that domestic policies and trader actions in Zambia were largely trigged by what was happening on the international market despite the fact that the country was not in an import position.
During the global food crisis, maize prices in Zambia started to escalate in July 2008, a time when global maize prices were trending downwards (Figure 8.1). This was mainly due to speculative maize purchases by the traders and millers and general bidding up of prices by both government and private sector over the limited maize surplus at the beginning of the marketing season. Prices continued to rise until March 2009 when the new harvest had started hitting the market.
(p.188) On the other hand, global maize prizes started to increase again in November 2008 and continued to increase beyond March 2009 when maize prices in Zambia had started to decline. The price trends showed in Figure 8.2 support the results from the transmission model that no long-run relationship existed between local maize prices and the US Gulf FOB maize prices and South Africa. Instead, the rising maize prices in Zambia were driven primarily by what was happening domestically than driven by global maize prices. However, the general inflation in the country was rising due to the increase in prices of inputs such as fertilizer, diesel, labour, and transport. The rising inflation was also accompanied by the depreciation of the ZMK against the US$, from 3,186 ZMK per 1 US$ to 5,500 ZMK between June 2008 to July 2009 making imports more expensive (Figure 8.3). Figure 8.3 shows the US$ denominated prices and it is apparent from this graph that Zambia grain prices did not skyrocket.
8.3 Impacts on the Poor
The increase in food prices is a big threat to the welfare of the poor, both urban and rural, who also constitute the majority of the Zambian population. (p.189) However, the impacts will vary depending on the characteristics of different households (Govereh 2009; Jayne et al. 2009).
Amongst the rural households, net sellers (28 per cent) are likely to have gained from the surge in food prices especially for maize whilst net buyers (49 per cent) were disadvantaged. The urban consumers and 49 per cent of the rural population, who are net buyers of maize, were negatively affected by the escalating maize and maize meal prices. The greatest impact was felt in the hungry season when prices rose above import parity.
Unfortunately, government marketing activities and policy decisions during normal and abnormal years have thus far been largely unresponsive to these statistics. For example, the FRA and the private sector usually attempt to purchase the entire marketed maize surplus, leaving virtually nothing for purchase by rural farmers during the lean season. The grain is instead bought and hauled to urban centres, where it is sold to millers thereby disadvantaging the majority of the poor rural households, who are net buyers of grain.
Furthermore, FRA’s sale of subsidized grain to large millers, who sell relatively expensive maize meal, further disadvantages the poor in urban areas who would prefer to purchase grain from the market and send it to small and cheaper grinding mills. Evidence indicates that many of the urban and rural poor rely on these less expensive ways of procuring their maize meal as long as grain is available in local markets for purchase (Mwiinga et al. 2002; Mason et al. 2011). However, when the supply of grain in local markets dries up, consumers are forced to switch to more expensive packaged maize meal, or cut the number of meals they eat per day. Mwiinga et al. (2002) estimated that low-income urban households could save roughly 7–20 per cent of their monthly income if they were able to purchase grain and mill it into roller meal (mugaiwa) at a local grinding mill, rather than relying on more expensive commercial alternatives. Mason and Jayne (2009) showed that a lot of poor households are not able to buy a 25 kg bag of maize meal, hence resort to buying small repacks pamelas at a price per kg that is about 30 per cent higher.
Government policies and strong lobby groups continue to ignore empirical evidence regarding the impacts of various past policy choices, not because they are insensitive to the plight of the poor, but because of other goals. Lobby groups, whose desire is to serve their own constituency, tend to pressure the government to implement policies that may not be beneficial to the poor. For example, the ZNFU has continued to lobby for higher subsidies to farmers, higher FRA buying prices and a ban on wheat imports. Whilst, on the other hand, the MAZ has in the past used their access to high government officials to influence FRA to offload maize to its members at subsidized rates with the promise of reducing maize meal prices to consumers, asking for the removal of export bans whilst pushing for open borders for wheat flour. Such (p.190) a tug of war that exists amongst the key lobby groups tends to force the government to choose policies that are politically popular ignoring their costs to the country and the impact on the poor. Political expediency in dealing with past food crises has always resulted in unintended consequences to the poor.
8.3.1 Impact to the Treasury
The level of government intervention was costly and exacerbated the degree of uncertainty in the market, something that could have been avoided with good planning. With the adequate warning provided to government as early as July 2008 regarding the impending maize shortages, early planning for imports could have saved the government 230 billion ZMK (approximately US$50 million). In addition, the sale of maize by the FRA should have started much earlier and would have prevented the prices from climbing to above import parity prices. The timely planning for imports would have ensured that moderate imports were purchased with the help of the private sector at a cheaper price and arriving before the start of the lean season in November 2008.
8.3.2 Mistrust between Government and Private Sector
The attempt to deal with the rising food prices reinforced the mistrust between government and the private sector. The government accused private traders of acting as saboteurs who only cared about their interests and profits whilst poor people suffered. On the other hand, the traders accused the government of favouring the interests of a few stakeholders.
8.4 Conclusion and Recommendations
In Zambia, the effect of the rising global food prices was not felt until late 2008 and early 2009. This study argues that failure by the government and other stakeholders to quickly respond to the global food crisis was the leading cause of the escalation of maize prices in the country rather than being driven by what was happening on the international scene. Like in the past, the implementation of government policy responses to deal with the rising food prices, especially for the major staple crop maize, were delayed due to ineffective response policies, protracted discussions, and inaction amongst key agriculture stakeholders.
This study exposes a number of key areas that need to be addressed if the government is to be successful in dealing with future food crises. First, the high level of mistrust between government and private sector, especially for the maize sector, should be recognized and reduced.
(p.191) Second, strong lobby groups with access to high political officials should be discouraged from overriding recommendations by the main technical committee tasked to deal with food policy issues. Procedures need to be established beforehand and all parties should be compelled to stick to them. Third, the government needs to review its policy of providing consumers with price relief through a few large-scale millers. The policy is easy to implement in the short run but past attempts to use this strategy failed to have a meaningful effect on retail maize meal prices. Instead, the government should consider off-loading maize to the open market so that the poor consumers have access to low cost maize. Local hammer mills and other small-scale mills can be utilized rather than forcing consumers to buy more expensive super refined maize meal from the commercial mills.
Since the government co-exists with the private sector, a rules-based market system will benefit the country because the market will become more predictable. It is not realistic to assume that the Zambian government will let market forces deal with food crises. However, as this study has shown, past unpredictable behaviour by the government tends to make the private sector seek guarantees before making any investments. If the government insists on participating directly in agricultural markets, predictable and transparent rules governing state involvement should be established to reduce market risks.
As in the case of rice, avoiding government intervention in exports and imports for maize may be an important part of an overall maize long-term policy because it would reduce the impact of droughts on domestic prices. However, there is fear that allowing external market shocks to be transmitted into local markets will cause unbearable pain to the poor in the country. This could be true in a static environment, but regional trade may be able to encourage private investment into technologies and institutions that broaden the scope of the market to better absorb price shocks. Policies that fail to include empirical evidence about the characteristics of the people they are trying to serve usually fail to achieve their intended results. The country should move towards a situation where politicians or policy makers should embrace empirical evidence rather than shy away from research results that deviate from the conventional wisdom. Depoliticizing government subsidy programmes is a good place to start. This may be one of the toughest recommendations to be adopted because of the power of some civil servants and politically linked private companies with vested interests who tend to resist recommendations to reform politically popular, but less effective programmes in favour of short-term personal gains. Good examples include the two most popular programmes in the country, the maize producer price support via FRA and fertilizer subsidy under FISP. Despite study results that have revealed the shortcomings of these two programmes and their negative (p.192) impact on long-term government investments on key agricultural drivers, the programmes have remained a top priority for most politicians. It may be true that elections can be won through these programmes but it is very irresponsible for public officers and interest groups to push for programmes that only benefit a few. With similar and less successful response strategies in the past, the government in collaboration with other relevant stakeholders should put together a standard operation strategy on how to deal with future food crises rather than waiting for a crisis to happen. An effective early warning system is required to trigger the response strategy with all players playing their part as per the operational strategy. This may be one of the ways to start dealing with the mistrust that exists between government and private sector thereby helping to quicken the policy responses to future food crises.
Last, the MAL should make every effort to have the Agricultural Marketing Act enacted. The draft Agricultural Marketing Bill agreed upon by the stakeholders in 2010 and revised in 2011 provided guidance on the involvement of the government in the fertilizer, seed, crops, and livestock markets. In particular, it proposed: the formation of an independent marketing council to help the country deal with food crises; limiting the role of FRA to only handling strategic grain reserves as well as requiring FISP to be reformed, particularly with regards to not limiting the coverage of the subsidy to mostly fertilizer but requiring the use of an electronic voucher to include the private sector dealers in the procurement and distribution of inputs. Implementing that proposal would be a step in the right direction.
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(2) The stocks committee comprises: MAL, MoFNP, Central Statistical Office (CSO), Zambia National Farmers Union (ZNFU), MAZ, Zambia Farm Growers Association, Zambia Peasant Small-scale Farmers Association, FRA, Grain Traders Association of Zambia (GTAZ), National Food and Nutrition Commission, Bank of Zambia, Indaba Agricultural Policy Research Institute (IAPRI) (formerly Food Security Research Project), Agricultural Consultative Forum FEWS NET Zambia, Zambia Agricultural Commodity Exchange, and Zambia Co-operative Federation.
(3) MAZ’s objectives are: (i) to promote the interests of the milling industry in Zambia; (ii) to assist the Zambian government with the country’s food security; (iii) to foster international and regional trade for the industry; (iv) to create dialogue with the government on behalf of the millers on trade policies and budgetary allocations; and (v) to provide a ready market for maize growers in Zambia.
(4) Import parity prices are calculated as the sum of the FOB price, transport charges from source to Lusaka, and an additional 10 per cent to cover handing and insurance cost at the source price.