Policy and Price Stability: Evidence From Southern and Eastern Africa
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Transcript of Policy and Price Stability: Evidence From Southern and Eastern Africa
Indaba Agricultural Policy Research InstituteINDABA AGRICULTURAL POLICY RESEARCH INSTITUTE
by
Antony Chapoto, PhD
Symposium on Making Maize Markets Work For All Malawians
Bingu International Conference Centre
Lilongwe, Malawi, October 1, 2015
POLICY AND PRICE STABILITY: EVIDENCE FROM
SOUTHERN AND EASTERN AFRICA
Indaba Agricultural Policy Research Institute
Food Price Dilemma1
Farmers lobby for higher maize prices + lower
fertilizer prices
Lower consumer prices, usually culminating into
consumer subsidies
A never ending Government struggle!!!
Floor Prices
above market
price at
harvest time
Treasury
Indaba Agricultural Policy Research Institute
Food Price Dilemma
Good intentions by government
have had negative effects on the
maize market:
Zambia: Food Reserve
Agency market participation
has been increasing over time
Buying beyond budgeted target
Delayed payments
Government ad hoc policies
reducing private sector
participation
High mealie meal prices despite
bumper harvests
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ZM
W M
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Maize grain Prices
2001-02
2002-032005-06
2008-09
Indaba Agricultural Policy Research Institute
Government budget
•Long-term productive investments: R&D, infrastructure, education, etc.
• High social payoffs • But payoffs come 5-20 years later• Critical for sustained poverty reduction
• input subsidy programs • marketing board price supports
• Immediate political payoffs;• Visible support to constituencies• contribution to sustained growth /
poverty reduction is unclear
Political economy of public resource allocation
Indaba Agricultural Policy Research Institute
Motivation
Food production fluctuations lead to price instability
Food price instability is a major problem
For farmers
For consumers
For governments
In response to food price instability, some governments implement “ad hoc” policies to control trade flows and/or price levels
Indaba Agricultural Policy Research Institute
Discretionary (“ad hoc”) trade policies
If government actions in markets are unpredictable, this tends to deter private sector from participating in the market Examples:
timing of export/import bans
o timing of change in import tariff rates
o when, where and at what price will marketing boards enter the market?
o when will the Board stop buying, and what will the price be after that?
Indaba Agricultural Policy Research Institute
Questions motivating our study 6
1. Do trade restrictions help to keep grain prices within reasonable bounds for consumers and producers?
2. Can trade restrictions support medium-term objectives of increased grain productivity, agricultural-led poverty reduction, and improved food security?
Indaba Agricultural Policy Research Institute
Results from East and Southern Africa
Chapoto & Jayne (2009), Minot (2013) finds that:
Maize price volatility is significantly higher in countries that actively intervene in their maize markets than it is in countries that make little or no effort to manage prices
Minot (2013)
Prices in Malawi, Zambia, and Zimbabwe, experience food price movements that are more than 50 percent more volatile than in countries that do not have entities engaged in maize trade
Indaba Agricultural Policy Research Institute
Do Trade Restrictions Promote
More Stable Prices?
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Zambia Malawi Mozambique South Africa Kenya Tanzania Uganda
Un
co
nd
itio
na
l C
oe
ffic
ien
t o
f va
ria
tio
n (
%)
1994/95-2013/14 1994/95-2003/04 2005/06-2013/14
Source: Chapoto and Jayne 2009, 2015
Indaba Agricultural Policy Research Institute
0.00
3.00
6.00
9.00
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15.00
18.00
Zambia Malawi Mozambique South Africa Kenya Tanzania Uganda
Co
nd
itio
na
l C
V
(%)
1994/95-2013/14 1994/95-2003/04 2005/06-2013/14
Do Trade Restrictions Promote
Price Predictability?
Source: Chapoto and Jayne 2009, 2015
Indaba Agricultural Policy Research Institute
010
20
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Co
nd
itio
na
l CV
(%)
1994
1995
1996
1997
1998
1999
2000
2001
2002
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2005
2006
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2008
2009
2010
2011
2012
2013
2014
Year/Month
Lilongwe, Malawi Maputo, Mozambique
Maize grain price unpredictability : Lilongwe, Malawi Vs. Maputo, Mozambique
Indaba Agricultural Policy Research Institute
11
When grain prices spike above import
parity, consumers are being unnecessarily
taxed by an inefficient market
Import ban/ restriction
When grain prices fall below export parity,
producers are denied income opportunities
from crop sales
[Export Ban]
Import and export bans
Please Note !!!
Indaba Agricultural Policy Research Institute
Export bans and trade restrictions
Generally doesn’t
stop trade from
occurring but raises
smuggling costs,
which depress
prices for farmers
and raise costs for
consumers
Indaba Agricultural Policy Research Institute
Zambia: Maize Market + Ad-hoc Policies
0
50
100
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1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Nom
inal U
S$ p
er
metr
ic ton
CIF from South Africa Lusaka wholesale price
World Food Crises
Deficit years
Bumper harvest
Indaba Agricultural Policy Research Institute
0
100
200
300
400
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1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Nom
inal U
S$ p
er
metr
ic ton
CIF from South Africa Lilongwe wholesale price
Malawi: Maize Prices vs. Import parity
Indaba Agricultural Policy Research Institute
Reduced Government Participation increases private sector participation
Zambia 2013/14 bumper harvest experience Government committed:
to buy less
charge commercial mills economic prices for maize from the FRA
Resulted in increased trader activity, higher spot prices for farmers, and increased production the following season.
0
20
40
60
80
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120
Perc
ent
% purchases by FRA % purchases by Private Sector
Indaba Agricultural Policy Research Institute
4
5
6
7
Conditional CV
Pe
rce
nt
1994-2014 1994-2004 2005-2008 2008-2014
Maize grain price unpredictability : Nairobi, Kenya
The more stable trade policy
environment in Kenya between
2005 and 2008.
o Joined East African Commission
trading agreement in January
2005.
o Removal of variable maize
import tariffs from Uganda and
Tanzania (except for a 2.75%
inspection fee).
Indaba Agricultural Policy Research Institute
Model 1 Model 2 Model 3
Rely on markets, government role limited to:
• Public goods investment
• Regulatory framework
• Strengthening of institutions / defense of property rights
• Policies supportive of private sector entry and competition
Primary reliance on marketsbut role for rules-basedgovernment operations
• e.g., buffer stock release in response to defend stated ceiling price
• Marketing board purchases at stated floor price announced in advance
• Transparent rules for initiating state imports
Role for markets and discretionary government intervention
• Based on premise that private sector cannot ensure adequate food supplies in response to production shortfalls
• Justification for unconstrained role for state interventions in markets to correct for market failures
Conclusion & Recommendations
3 competing models of roles of government and private sector in food markets:
Indaba Agricultural Policy Research Institute
Conclusion & Recommendations
Government operations in markets are costly. Not clear improvements in price stability and food security
Government actions should be predictable. set clearly defined and transparent rules for triggering
government intervention with regard to changes: in parastatal purchase and sale prices ,
import and export decisions,
tariff changes and stock release triggers
Government actions should facilitate regional trade, because of its potential to: raise farm-gate prices in areas of surplus reduce consumer prices in areas of deficit
Indaba Agricultural Policy Research Institute
19
Unpredictable policies
Mistrust between
Private sector and
Government
Limited private sector
investment and market participation
Conclusion & Recommendations
Indaba Agricultural Policy Research Institute
3 recurrent processes
Examples from Zambia
Strategic interactions between public and private sector in food markets
Indaba Agricultural Policy Research Institute
National food production shortfall
anticipated
Who’s going to import?
And how much?
State announces plan to import
X tons
Private traders sit on
sidelines
State incurs delays in
contracting for imports
Supplies dwindle;prices skyrocket
“EVIDENCE THAT MARKETS FAIL!”
Process # 1
Zambia- 2001/02, 2002/03
Indaba Agricultural Policy Research Institute
National food production shortfall
anticipated
Trader arranges
to import;
asks for waiver
on import duty
Government
delays in
waiving import
duty rate
Supplies dwindle;prices skyrocket
“EVIDENCE THAT MARKETS FAIL!”
Private sectordelays
importation;intrigue over
timing ofwaiver
Process # 2
Zambia: 2005/06
Indaba Agricultural Policy Research Institute
National food production /
balance sheetsindicate adequate
harvest
Prices rise as actual supplies
dwindle
Charges of hoarding and
trader manipulation
of market
Supplies dwindle;prices skyrocket
“EVIDENCE THAT MARKETS FAIL!”
Import licensesapplied for but
not granted
Process # 3
Zambia: 2008/09