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Title SUCCESSES AND CHALLENGES OF FOOD MARKET REFORM: EXPERIENCES FROM KENYA, MOZAMBIQUE, ZAMBIA, AND ZIMBABWE
Full text http://purl.umn.edu/11471
Author(s) Jayne, T.S.; Mukumbu, Mulinge; Chisvo, Munhamo; Tschirley, David; Weber, Michael T.; Zulu, Ballard; Johansson, Robert; Santos, Paula; Soroko, David
Abstract EXECUTIVE SUMMARY: Governments in Eastern and Southern Africa have fundamentally transformed their food economies over the past decade. Despite the accumulation of empirical analyses showing that the food market reforms have generated some impressive achievements, these conclusions remain controversial and contested by important policymakers in each country in the region. The reforms have created acute political dilemmas for governments amidst protests to protect important groups whose interests are perceived to have been threatened by the reforms. As a result, policymakers have faced difficult decisions in defining a consistent and effective role for the state in the newly emerging food marketing systems. The major challenges facing policymakers in the region are: (1) how to design agricultural marketing systems to better serve as a catalyst for farm productivity growth, particularly for smallholders; (2) how to cost-effectively deal with price instability for both consumers and producers in a liberalized marketing system; (3) how to develop the commitment to a consistent and stable policy environment to support long run private investment and insulate the new systems from disruptive policy lurches in response to short-term political crises; and (4) how to design a process of collaboration between policymakers, donors, researchers, and the private sector to maximize the probability of achieving improved agricultural policy and performance over time. A key feature of each of these challenges is the need for a better understanding of how to stimulate private investment in the food system. A better understanding of how government actions affect private incentives may be critical to avoid situations in which perceptions that "the private sector will not respond" become a self-fulfilling prophesy. This paper describes the different food policy courses pursued in recent years by four countries in Eastern and Southern Africa, and documents their differential effects on farmer and consumer behavior. Results are based primarily on a survey and synthesis of recent analysis. The paper highlights lessons learned from the different policy paths pursued in each country, and thus provides insights into the costs and benefits of alternative strategies for promoting national food security and enhancing producer and consumer options. Section 2 provides an historical context for the current food policy dilemmas being faced in the region. This section draws the linkages between current debate on food market reform in the region and (1) the historical role of food policy in the post-independence "social contract" between the State and the African majority; (2) policymakers' positions toward the private sector and the workings of markets; and (3) historical maize consumption patterns. Two conclusions from this section are particularly important. The first concerns the need to set available production trend data in context. There has been a decline in maize production since the market reforms were initiated in most of these countries. These trends have sometimes been interpreted to signify a failure of market liberalization. However, the weight of the evidence indicates that both market reform and the grain production decline have been the consequence of unsustainable government operations during the control period that temporarily and unsustainably encouraged smallholder maize production during the control period (in the form of subsidized credit,subsidized input distribution systems, and loss-making marketing board operations). There is a great need for more accurate information on how smallholder cropping patterns have shifted after the transfers to the maize sector were withdrawn as the reforms progressed. A second and related conclusion is that the continued policy objective of overcoming "dualism" in the agricultural sector, and doubts over the private sector's ability to play the leading role in achieving this objective, have resulted in a second generation of controls and government distribution programs to subsidize inputs and output prices for selected groups. This environment has clearly dampened the private sector's response to market reforms. Sections 3 through 6 present case studies of the market reform process in Zambia, Kenya, Mozambique, and Zimbabwe, respectively. The divergent approaches to market reform taken by these countries provide a key opportunity for policymakers and analysts to learn from the experiences of each case. Section 7 compares the level of price instability faced by consumers for various types of maize meal products in the control period vs. the more recent reform period. The main conclusion from this section is that while both refined and unrefined maize meal prices do exhibit relatively high price variability (compared to the control period), this greater price variability has in most cases occurred around a lower mean level. The upside price risk to consumers has actually declined during the liberalization period for consumers of whole maize meal, a product whose availability was constrained during the control period. Policy implications and a summary of main findings from the case studies are presented in Sections 8 and 9. There are four main conclusions. First, food market liberalization has generated more successes than generally recognized. Examples of these are in grain retailing and milling, where consumers in all countries now have expanded options and have benefitted from the lower milling margins of small-scale hammer mills; greater availability of maize grain in rural grain deficit areas due to strengthened inter-rural private grain trade; and the rise of regional trade patterns, which is playing a critical role in promoting cost effective food systems in cases where this is allowed. Second, it is increasingly clear that the private sector's response to liberalization is sensitive to a broader range of government actions than commonly understood. For example, statements of key politicians in local newspapers critical of a market-oriented system are likely to be incorporated into the private sector's expectations of the payoffs and risks to future investment in the system. There is a need for a better understanding of the kinds of incentives that the private sector responds to in order to avoid actions that make "lack of private sector response" a self-fulfilling prophesy. Third, consumer vulnerability to price instability under liberalization has not been as severe as often portrayed. Private investment in grain distribution, processing, and cross-border trade as a result of the reforms have expanded consumers' options and ability to stabilize expenditures on maize meal. These market-oriented means of stabilizing consumer food expenditures weakens therationale for expensive government price stabilization schemes. Fourth, positive government actions to reduce market instability are needed and are beginning to work in selected cases. These actions include (a) improving the transport infrastructure; (b)promotion of regional trade; (c) market information systems that are expanded to include information on prices across borders, exchange rates, and trade flows; (d) improved communication infrastructure; (e) nurturing the development of market-oriented mechanisms (e.g., commodity exchanges) for handling price risk; and (f) alleviating the constraints on private access to foreign exchange. The potential benefits that these investments can bring underscore that there is no need to accept prevailing levels of food price instability as "given." Importantly, these types of investments may also reduce political risks associated with liberalized food markets, and thereby promote policy stability and consistency Ãâ€šÂ- key factors in promoting desirable private investment in the system. - Agricultural and Food Policy
Type of publication preprint
Identifier RePEc:ags:midafs:11471
Repository RePEc - Research Papers in Economics
Added to C-A: 2009-06-22;10:17:57