Sun, Aug 7, 2016
Paradoxical as it may sound, the cure for higher food prices is more often than not higher food prices.
Paradoxical as it may sound, the cure for higher food prices is more often than not higher food prices. This is, of course, on the assumption that higher food prices incentivise farmers to increase food production, which will eventually lead to lower agricultural commodity prices due to increased supply, and therefore affordable food prices. This also assumes market forces are allowed to play out without state intervention and control.
The temptation to regulate markets has, however, proved too strong an urge for many developing nations. In April 2016, Zambian media reported that the government intends regulating maize meal prices on the basis that recent increases in food prices are weighing on consumers. By March 2016, Zambia’s maize meal prices had increased 21% year-on-year on the back of the ongoing El Niño-induced drought.
The government’s intention to intervene in the maize meal market shows it cares for its consumers’ well-being. But the unintended consequence of regulation is that farmers and food processors in the value chain invariably lose. From the farmer’s perspective, curbing maize price increases could disincentivise increasing food production, thus retarding the growth and development of the agricultural sector. This also has negative effects on agricultural job creation, which depends on the expansion of production.
Africa has much to learn regarding the merits of market deregulation. There are good examples, such as South Africa’s agricultural sector, which now subscribes to a free market system after being deregulated in 1997/98. This unlocked farmers’ growth potential and developed their capacity to adapt and participate in global agricultural markets. The process has not always been easy for South African farmers, as they compete with the United States and European Union producers, which are heavily subsidised. Even so, a large body of literature indicates that some South African agricultural commodities, such as maize, are still competitive in export markets relative to other leading exporters.
The success of South Africa’s deregulation can be credited to government and farmers’ effort, and learning from this model could benefit the rest of Africa. South African government understood that the best way to feed the nation was to allow the free market system to deliver to dinner tables. To improve food security, institutions were developed to govern and guide some of the market processes from production to trade, such as the International Trade Administration Commission, and a number of directorates within the Department of Agriculture, Forestry and Fisheries, such as food safety and quality assurance, South African agricultural food, quarantine and inspection services, the perishable products export control board and plant health.
The South African situation is not perfect; the country continues to adopt new policies, such as land reform and labour legislation, which distort markets. Nonetheless, South Africa offers many examples for the region to emulate, the key one being the deregulation of markets.
The region is struggling with drought, and countries such as Zambia are attempting to close borders to save maize for their consumers. Here at home, we continue to see increasing volumes of maize exports to neighbouring countries.
In fact, Grain South Africa estimates that SA’s 2016/17 maize exports to the region could reach 630,000 tonnes, even though we will be net importers of maize due to the drought, and maize imports are expected to reach 3.8 million tonnes.
Poor infrastructural development is partly responsible for Africa’s lower agricultural performance, but policy is a major stumbling block. Real improvements in the agricultural sector will require the political will to change policy. Then infrastructure and investments can follow. The key in all of this is to support one another as African nations.
Image Credit: http://www.worldatlas.com
Sihlobo writes in his own capacity. Follow him on Twitter @WandileSihlobo
Sihlobo is Head of Economic and Agribusiness Intelligence at the Agricultural Business Chamber (Agbiz) in South Africa.