Subsidies have been used to raise prices artificially for producers and lower them for consumers. SSA farmers need to be helped to invest, especially when they are facing agricultural prices below their production costs, but agricultural subsidies became fiscally unsustainable and led to domestic cereal market reforms in several African countries in the s and s. Management of this fiscal problem is often construed as misplaced antagonism to agricultural subsidies in SSA, given their use at incommensurably higher levels in industrialized countries.
Domestic reforms in SSA meant modifying state interventions and policies to reduce marketing costs and reduce government budget costs. The core policy changes that African countries have been implementing include:. First, some governments have implemented a committed programme of market reform. Examples in eastern and southern Africa would arguably include maize and fertilizer marketing in Mozambique and Uganda. Mali and Ghana are two other countries commonly cited for their relatively steady adherence to cereal market reforms .
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This category would also include countries where reforms may have been temporarily reversed but over time have moved to a fundamentally market-oriented system e. It is important to note that these cases are neither success stories nor failures when measures such as growth in GDP per capita and incidence of poverty are employed. On the other hand, the adherence to market reforms, for example, in cereal markets, has improved household food security. A second path includes countries that have openly resisted reform or reimposed controls after some experimentation with reform.
This category is characterized by transparent resistance to liberalization e. The third form involves de jure liberalization and de facto state control of marketing, where the state maintains control while ostensibly implementing liberalization. The fertilizer markets in Zambia and Ethiopia and coffee market in Malawi also exemplify this category . It is difficult to argue that countries which have followed this path have succeeded or failed to reduce the incidence of poverty but it is clear that private sector-led agricultural development has been severely stifled.
A close examination of countries in southern Africa reveals that many of the most fundamental elements of the reform process either remain unimplemented or were reversed within several years. This Board has reverted back to a two-tiered maize pricing structure, selling maize at a lower price to large-scale milling firms than it does to other buyers.
The GMB has also remained the sole legal exporter and importer of maize, and continues to offer pan-territorial and pan-seasonal maize prices as it did prior to the reform programme. While this policy environment has provided niches for new entry and investment at certain stages of the maize supply chain, notably in assembly, local milling and retailing, it continues to impede private investment at other key stages. It has been argued  that policies that favour communities in remote rural areas can be used as part of the poverty reduction strategy, but that these should not impede sustainable economic development of other regions.
Poverty reduction policies that improve conditions for private sector investment in these regions will assist in extending the benefits of market reforms to outlying areas. The former state maize marketing board, NAMBOARD, was abolished in but since , the government has designated various parastatal or private companies to distribute fertilizer on its behalf. In with donors increasingly calling for the government withdrawal from fertilizer distribution, the Government responded by contracting private companies as logistical agents to distribute fertilizer to recipients designated by the Ministry of Agriculture.
The designated agents received a flat fee for every tonne distributed.
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When state enterprises work hand-in-glove with selected agents, commodity market liberalization is incomplete. After almost a decade of aid-conditionality agreements with the World Bank, new entry of commercial fertilizer firms has been limited due to the uncertainties associated with government distribution programmes. As part of aid-conditionality agreements, the Ethiopian government has curtailed the operations of its official state marketing board.
However, in it permitted the creation of regional holding companies which enjoy near-monopoly rights for the distribution of fertilizer in their respective regions. Two large private companies have been forced to reduce significantly their level of participation in the fertilizer market because regional governments have been actively promoting the holding companies while simultaneously raising barriers to private sector companies.
The reform process has been marked by increased political interference in the decisions of key cooperative and joint-venture marketing organizations .
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In the maize sector, the state-owned marketing board has continued to support maize prices in certain areas . Maize import tariffs, marketing board price supports, and relatively high transport costs have combined to make maize prices in Kenya among the highest in the world, particularly among countries where maize is a staple crop .
These examples show that many policy barriers continue to inhibit the development of competitive input and commodity markets. There may be legitimate objectives underlying the government actions creating these policy barriers, but it would be inappropriate to evaluate the effects of private sector response to liberalization in such environments.
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These cases illustrate how de jure market reform can be implemented in such a way as to maintain de facto control over the system. In such cases, the market reform process clearly proceeded in a manner that was unintended by its advocates. Even though farmers in SSA compose the majority of the population, evidence is presented later to show that a smaller portion of these farmers participate in the market as net sellers while the majority are net buyers of food from the market. In these circumstances, price supports to farmers will raise prices for staple food and could render net food buyers insecure.
The liberalization of domestic markets in Africa is taking place at a time when there is increasing renewal or creation of a number of regional trade arrangements. Countries in SSA share common colonial histories and characteristics, especially administrative and legal institutions. An increasing number of countries are coming together to forge stronger trading links among themselves. These trading blocs tend to allow for free movement of factors of agricultural production, agricultural commodities and services. Intra-Africa trade could prove to be a key avenue for achieving sustainable development of economies and preparing for competition and globalization.
Not all countries are signatories to regional trade protocols and even after signing the protocols, trade tariffs still continue because the level of preparedness is low. With the exception of WAEMU, members of the other regional bodies also belong to one or two other trading blocs . Regional trading blocs may include free trade areas FTAs but extra-regional tariffs remain restrictive. The restrictions on extra-regional trade have been lowered to a maximum of 20 percent in the case of West African countries, but in southern Africa, for example, national tariffs are as high as 35 percent.
According to Subramanian et al. The number of countries with open trade regimes has increased from 7 in the s to 25 in the late s . Africa also has the highest average level of tariffs and tariff revenue as a ratio to GDP. Countries in eastern and southern Africa are more highly protected than the remaining countries in Africa.
Despite these high tariffs, WTO agreements exempt Least Developed Countries from tariff reductions and allow lower commitments and longer implementation periods in developing countries compared to developed countries. The majority of African states face difficulties in balancing their budgets and cannot afford provision of support programmes and export subsidies to match developed countries.
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At the domestic level, market reforms have a potentially positive impact on consumers, millers, traders and producers in Africa. Domestic agricultural policy reforms can increase competition, reduce costs and risks to farmers, traders and consumers. Governments which opened up domestic markets earlier than the setting up of FTAs were likely to be in an advantageous position to capture the benefits of new regional trade opportunities.
In addition, small farmers could move towards a more specialized commercial production system if risks in cereal markets could be reduced and overall marketing costs for inputs and outputs were reduced.. Initial indications, however, show that the benefits of trade liberalization have been skewed in favour of consumers and against farmers. The part of the food marketing system that has been most affected by the reform process in each country has been at the stages of milling and consumption.
For decades prior to the reforms, maize meal consumption in urban and grain-deficit rural areas was predominantly in the form of a refined sifted meal processed by a few large-scale roller milling firms. Governments fixed milling and retail margins based on the milling cost structure. A second form of maize meal, wholemeal, was consumed in rural areas where grain supplies were available.
Cross-country studies in eastern and southern Africa indicate that unit processing costs for hammer-milled maize meal are typically less than half those of the refined roller-milled meal, which is significant given that about percent of the retail cost of maize meal during the period of state control of marketing operations was comprised of milling margins .
The governments of Kenya, Zambia, and Zimbabwe in , and of Mozambique in , eliminated controls on private grain trading, deregulated maize meal prices, and eliminated subsidies on maize sold to registered millers. In each country, the large-scale millers swiftly lost a major part of their market to small hammer mills, whose numbers rapidly expanded in urban areas. Widely viewed during the period of state control of marketing operations as a product having negligible demand, whole maize meal by accounted for 40 percent percent of total urban meal consumption in Zimbabwe, Kenya, and Zambia .
The increased availability of wholemeal at 60 percent to 75 percent the cost of roller meal had partially or fully offset the adverse effect of eliminating consumer subsidies on roller meal in these countries. Similar benefits have been achieved in rural grain-deficit areas that were formerly dependent on refined industrially produced meal prior to the reforms.
Household surveys carried out in the period indicated that low-income consumers in particular shifted quickly to hammer-milled meal. Long-term benefits of programmes to reform cereal markets were also expected both at trader and producer levels. The removal of official prices was associated with producer price increases, creating more incentives for farmers to intensify production through increased use of inputs. Between and , marketing margins for millet and sorghum fell by 20 percent. Since marketing costs account for percent of the price consumers pay for staple cereal commodities in the countries reviewed, the reduction in marketing margins represents an opportunity where production incentives and household food security were improved .
The bulk of the evidence suggests that the savings in marketing costs are passed to producers in the form of higher prices. In Ethiopia, the benefits to surplus white teff and maize producers were evident in a producer price raise of 2 percent to 20 percent. More remunerative prices were expected to lead cereal producers to adopt more commercial and less subsistence production strategies . The case of grain marketing reform in Ethiopia between and was associated with higher prices in major grain-producing areas and lower prices in major grain deficit areas.
For traders, the benefits included an opportunity to specialize in trader operations including buying in surplus areas, storage, transportation and selling in deficit areas. The reduction in the risk of cereal trading and the elimination of restrictions on grain movement contributed to a stable market in a manner that reduced overall cereal marketing costs. In their review of export crop liberalization in Africa, Shepherd and Farolfi  found it premature to draw any definite conclusions but confirmed that producer returns have been higher and payments more prompt than under the former marketing arrangements.
Financial and input market development remains a challenge as these markets are given a chance to develop for the first time. For countries that have not reformed their commodity markets, reforms can reduce constraints that continue to inflate costs in the food system. Policy reforms are only part of the overall on-going programme of market development and they will not resolve all the problems of food security in Africa.