Maravi

(ZAMBIAN-ECONOMIST) The Mealie-Meal Crisis in Zambia

COMMENT - From Chola Mukanga's blog, from the President of NAREP, Elias Chipimo. It is great to hear a more detailed background to the maize/mealie-meal crisis. Drought in the US/Canada, leading to South Africa's exports being diverted from the DRC to the USA, leading to higher prices in the DRC, which leads to Zambian maize exports to the DRC.

The Mealie-Meal Crisis in Zambia
By Elias Chipimo

When NAREP held a press conference on 10 January 2013 to deliver our New Year message, we challenged the Patriotic Front to stop focussing on political domination (for example, through triggering unnecessary by-elections) and to prioritise development actions. We then gave several examples of people’s expectations and pointed out that it was not our intention to see the PF fail because if they failed, it would be the people who would suffer.

We received a harsh response from State House suggesting that we are living in a “parallel universe” and requesting us to: “pinpoint where the PF Government has failed, and provide alternative grounded options rather than spend time in a day-dreaming or theoretical session about what [we] [wish] to happen”. The Parallel Universe Series will therefore address issues we were asked to point out. We do this in the spirit of offering solution-oriented thinking and to share with the general public our own policy priorities and governance plans as a Party that seeks to restore values-based leadership through constructive reasoning and issue-based politics. Our first discussion topic is the current mealie-meal crisis.

Rule number one in handling a maize crisis: accept that there is a problemFew people would deny that we are facing a serious food crisis and one that could get a lot worse by the time the current rains are over and the new maize crop is harvested. The price of maize meal – the nation’s staple food – has increased in some cases by over 100 percent from the prices prevailing prior to the day the PF administration came to power. As we will try to demonstrate, although the problem is not entirely the PF’s fault, decisions that they have either taken or failed to take, have served to make a bad situation even worse.

With the price of mealie-meal reaching record levels, the PF appears to have finally woken up from its development slumber and realised they need to get their act together. The problem is that rather than acting, they are reacting. During one of the seemingly endless swearing-in ceremonies at State House, President Sata stated that he would consider re-introducing price controls to curb the high cost of mealie-meal. This would be an act of desperation and would only make the situation worse over the long-term. When you consider that prior to the election in 2011 the average cost of a 25 kilogramme bag of mealie-meal was K45,000 (rebased K45) and that this had risen to over K90,000 (rebased K90) at its highest point in some parts of the country last month, it is clear why there is some panic within the PF hierarchy.

The threat of price controls should not be taken lightly. Mealie-meal increases on a much smaller scale formed an important part of the revolutionary build up that saw the downfall of President Kaunda in 1991. Riots that took place in June 1990 due to Kaunda’s attempt to remove subsidies on maize were seized upon by a daring signals officer who mounted a short-lived coup less than 12 months before Zambia’s First President was finally voted out of power. Mealie-meal is clearly serious business in Zambia. What is sad about the situation we face today is that the present increases were predictable and could have been avoided.

The belated intervention by the Food Reserve Agency (FRA) and continued threats from the Head of State against the millers have meant that prices have started to come down. This has reduced the fear that price controls and other Second Republic tactics will be adopted to address a problem that was almost entirely due to the mishandling of the situation by an administration that appears to be focused more on playing politics than on development. Before we get too cosy with the idea that this risk has gone away, however, we need to remember that because the current price reductions are not a reflection of market forces, the reductions we are witnessing may only be temporary. Sooner or later, a more comprehensive approach to dealing with the mealie-meal crisis will have to be taken. What is needed now is a government that fully understands the politics of maize.

Understanding the politics of maize

When prices of commodities rise drastically, it is usually a market signal that something has gone wrong with the balance of supply and demand. If more people want to buy something that is in short supply, the price of that item will quite naturally go up. Any person who is in the business of trading in mealie-meal will be well aware when demand goes up and so will the consumers. Out of desperation and in order to secure an “essential” commodity whose availability is uncertain, people will – up to a certain level – be reluctantly prepared to pay more. This is exactly what has happened with the price of mealie-meal in Zambia.

The PF does not seem to have understood the politics of maize quickly enough. They have been too busy dealing with their political opponents to realise that they have created for themselves a new enemy: the ordinary Zambian who just wants to be able to enjoy his staple nshima without paying too much for it. Things might not even be so bad for the generally neglected Zambian if at least he or she had a job and could afford the price increase – or if he or she did not have to suffer endless load-shedding, lack of access to quality healthcare and safe clean water, or to face costly transport charges getting the family to school and to work. But before we give the PF too much grief over their poor handling of the maize crisis, let us first examine how we got here in the first place.

The roots of the crisis

The roots of the current mealie-meal crisis lie in the seemingly insatiable demand for the commodity from neighbouring countries, particularly the Democratic Republic of Congo (as well as in the broader Great Lakes Region and beyond), which demand has been made even worse by last season’s poor harvest in the United States and Mexico. Here is a summary of the challenge: South Africa has produced about 12 million metric tonnes of maize this year and is able to supply mealie-meal to the Congo more cheaply than Zambia because of its efficient system of planting, harvest, storage, finance and generally well-supported agricultural sector. This year, however, South Africa is not exporting to the Congo because its exports are covering the shortfalls in the North American markets (which were a result of last year’s drought in that region). The massive vacuum in the Congo supply chain has created even greater pressure on Zambian maize. Due to the basic rules of supply and demand, Zambian maize has simply become hot property in the DRC and beyond, pushing up the local sale price to unprecedented levels.

Had the Government intervened early enough when it became clear that prices in Zambia were rising, the crisis would have been far better managed. For example, when several politicians and commentators started speaking of banning exports last year, it was precisely to prevent Zambian maize from being sucked into the regional vacuum and creating a crisis here.

When you add to the regional demand factor, the various problems resulting from (i) the Food Reserve Agency’s confusing role in the maize market (exporting maize when our markets are facing erratic supplies); (ii) infrastructure challenges preventing maize from being collected from rural areas when roads are impassable during the rains and there is no effective storage in these locations; (iii) long-term structural problems in maize marketing; (iv) delays in providing inputs and payments to farmers; (v) poorly thought out government policy; and (vi) last minute procurement practices, you have the perfect storm of problems. You also have one predictable outcome: sky high maize prices in excess of K100,000 per 25 kilogramme bag. In some ways, we are lucky that the price is not higher!

When you have a critical continental shortage of a staple commodity creating strong regional demand, the short-term measure to take is to prevent exports (so that you can at least feed your own people) and flood the market with as much raw material (stored maize) as possible in a consistent manner. Belatedly, this is the action that PF administration has taken. The reason why prices are not coming down as fast as they should is that the demand is still so high and there are no effective means of preventing exports from our long and porous border with the DRC. Earlier this month newspapers reported the discovery by a Government official of a boat laden with mealie-meal as it was about to set sail for Burundi from Mpulungu harbour. Demand is high in the Great Lakes countries and into Sudan. How many boats go unnoticed? How much mealie-meal is being smuggled daily, weekly, monthly? No one knows!As for the FRA? Well, that is a whole different story. FRA stocks of maize are not audited and it is pure guesswork as to how much maize they are holding at any one time and the quality of that stock. It did not help that the FRA was itself getting in on the export game during the current marketing season, presumably to try and recover the huge subsidy costs to the maize sector which amounts to nearly US$2 million per day. That amounts to 730 million dollars a year – almost the same amount of money as we borrowed under the Eurobond!

So what is the way forward?

(a) Infrastructure and extension services

Clearly, there is need for more innovative approach to the challenges (actual or perceived) affecting this critical sector. Even when it is not trying hard, Zambia is capable of producing enough food to feed itself. There has to be an expanded incentive to produce not only more but to do so efficiently. This calls for massive investment in extension services, research and development, road networks, irrigation infrastructure and in maize marketing. The colossal amounts being spent on maize purchases could have done wonders if applied to these areas. It is commendable that a good part of the Eurobond is to be spent on the energy and transportation sectors. These are critical areas for ensuring sustained agricultural production.Zambia has in excess of 400,000 square kilometres of medium to high quality arable land that could serve as a massive breadbasket not only for the region but for Africa as a whole. Without investment in infrastructure, however, this potential will remain unrealised. The PF is certainly trying to do its part to improve the road infrastructure with its Link 8,000 project. The only problem is that Link 8,000 is not being supervised and run in a manner that will get us the best results within the shortest possible time and at the least cost (but this is a topic for another day).

(b) New marketing mechanisms

Once production costs are brought under control, we need to develop an efficient marketing mechanism. Innovative ideas include the support to the development of a vibrant commodity exchange linked to a series of storage centres around the country. Storage is critical and can be tied to a system of warehouse receipts. This is a great way to reintroducing the financial sector into agriculture even at a smallholder level. Storage that is certified based on best international practice will effectively commercialise the small farmer. If, for example, a rural small-scale farmer can deposit their produce in a warehouse near his or her field and collect a warehouse receipt for that commodity, he or she can take that receipt and obtain cash for part or all of the stock. This will prevent panic selling and will provide stability to his or her financial requirements. In order for such a system to work efficiently, however, Government must put in place – among other things – supporting legislation and a national storage construction and development programme.

It is important to recall that the private sector has been asking for the recognition of a Warehouse Receipt as a document of title from as far back as 2004. The MMD Government only moved on this in 2010 in an attempt to replace the Agricultural Credits Act. However, the 2012 Act remains unimplemented. This action should be delayed no further. Similarly, an Agricultural Marketing Bill went through stakeholders consultation in 2010 but it is not clear when it will be taken to Parliament despite a Parliamentary Committee report recommending the immediate presentation of the Bill to the National Assembly. It contains important provisions for the improving the sector and curtailing adverse political interference. A Commodity Exchange Bill also underwent stakeholder consultation in February 2010, although it is not clear what stage the Bill has reached.
All of these interventions will help to put maize supply on a much better footing. The price of mealie-meal should be determined as much as possible by market forces and if the Government wants to intervene then it should be done for every bag of roller meal which leaves the mill and not from the raw material stage. After all, Government is probably also subsidising the production of stock-feed (which uses huge amounts of maize) and is not able to monitor how much of the subsidised maize is being used in the stock-feed industry.

(c) Rethinking our diet and farming practices

It is also important for Government to begin the exercise of re-thinking our dependence on maize as a staple food as part of a broader crop diversification programme. Consuming huge quantities of maize meal, particularly the refined breakfast meal contributes to the high rates of preventable illnesses – particularly diabetes. It is almost as impacting as taking lots of sugar in your tea because it is simply refined carbohydrates (especially breakfast meal) that are then converted into sugar by the body. Traditionally, our communities were raised on finger millet – a commodity that can grow with far less fertilizer, has far greater nutritional value and would not become embroiled in the politics of maize as it can be grown more cheaply and efficiently in rural locations. Rural farmers need to be supported to move from subsistence to income-based farming through the emphasis on money crops like soya beans. Soya beans is a source of protein that is widely used for both human consumption and animal feedstock and has great national and regional demand. A soya farmer should have no problem paying back loans on the back of huge demand. In order for the maize sector to perform better, certain structural changes will have to be made.

(d) Rethinking the role of the FRA

Government needs to seriously rethink the role and performance of the FRA. Many traders and millers are not willing to take any local positions on maize preferring to do so purely for export and to a lesser extent to supply local breweries which consume a very small portion of annual production (approximately 80,000 metric tonnes against a full harvest of over 1 million tonnes). Local traders have traditionally had mandates from mills to buy and stock maize for them for release later on in the year but this business has been obliterated by FRA. The reason is simple. If a trader is not sure whether the FRA will also begin releasing maize at a cheap price to millers in the middle of the year, that trader will not want to hold stock that he might have purchased at a high price. This is because even a small reduction in the FRA price to the market could bankrupt a miller that has pre-purchased maize stock for releasing later into the market.

Most millers rely on bank finance but the lack of clarity and planning on the part of FRA makes both the millers and the lending institutions nervous and therefore cautious. They have no certainty as to when the FRA will intervene in the market. The only solution is to focus on the export market or buy limited amounts of stock that they can quickly sell if the FRA drops the price of maize. The financial sector generally prefers to lend to FRA because such lending comes with a Government guarantee. Millers would therefore rather fill their storage sheds with only a few months of stock when FRA is not participating in the market between May and October (a restriction set by the Food Reserve Act).

Further, because not every miller is able to accesses cheaper FRA maize, there is a distortion in the market. A close look at production figures shows that the more efficient producers of maize – essentially the large scale farmers – have tended to diversify into other commodities such as soya beans and tobacco. FRA has therefore only served to promote inefficiency. Current maize yields in Zambia average about 2 tons per hectare when they are supposed to be 5-10 tons per hectare. With its 1.3 million small-scale farmers, Zambia can easily match the average annual South Africa production of 10-12 million tons of maize and feed the continent!

Conclusion

A simple comparison between Zambia and South Africa demonstrates the challenge we face and how without more focussed national leadership, we will not solve the problem of high maize prices. In the end, unless economic activity picks up and people are able to earn more money, the price of maize will always be too high. Even in South Africa where production and marketing efforts are efficient, the price of a 25 kilogramme bag of maize fetches over K100,000 (rebased K100). If the PF administration was as determined to deliver development as it is to destroy Nevers Mumba’s MMD, Zambia would already be a very different country by now. As one expert in the sector (who shall remain nameless) points out, maize in the Americas and Asia is an economic commodity, whereas here we have reduced it to a political crop, haemorrhaged the Treasury and succeeded in sustaining poverty.

Elias C. Chipimo is a Zambian politician and current President of NAREP. He previously worked as a corporate lawyer and human rights activist. He is the author of the book - “Unequal to the Task” which discusses leadership in Zambia and the current state of the nation.

Labels: ELIAS CHIPIMO, FOOD, FRA, MEALIE-MEAL, NAREP

posted by MrK @ 3:35 PM