by Wandile Sihlobo | Oct 3, 2019 | Africa Focus
Government interventions in agricultural markets seldom lead to the desired outcome. I expressed this view when the Zimbabwean government banned sales of maize by farmers to anyone other than the government’s Grain Marketing Board at a prescribed price in June 2019. This move led to farmers withholding their produce, instead of delivering it to the Grain Marketing Board. The result was ultimately a scarcity of maize in the market, which inevitably did not address the government’s concerns of consumer well-being (affordable food by setting lower maize prices). This week, this realisation kicked home. And thus, the Zimbabwean government lifted the ban on private grain sales and granted the nod to individuals and corporates to import quantities of their choice.
Domestic view
Here in South Africa, there are sufficient maize supplies for the current marketing year which ends in April 2020. Hence, the focus has somewhat shifted to 2019/20 planting season which starts later this month. In this process, the weather will be a central focus until February 2020 when the new season crop, which is about to be planted, has pollinated. As best as we can tell, the season ahead promises above-normal rainfall in the central and eastern parts of South Africa, which is supportive of maize and other summer crops. I have no concrete view about the weather forecast for the western regions of the country for the upcoming season. But it’s quite rare to see above-normal rainfall in the eastern regions and dryness in the west. Hence, I suspect that western areas could also receive good moisture, which would bode well for the 2019/20 production season.
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by Wandile Sihlobo | Aug 26, 2019 | Africa Focus
On 25 August 2019, we learned that the Zambian government has placed a price cap of $199 per tonne on maize (approximately R3 023) and has justified its actions by noting its concerns over rising maize prices, which could disadvantage many poor Zambian households.
The maize prices have increased notably over the past couple of months due to a 16% year-on-year decline in Zambia’s 2019 maize production to about 2 million tonnes. While the market has reacted to this decline in harvest, Zambia should have enough maize to meet local demand this year, thanks to large carry-over stocks of almost 500 000 tonnes from the 2018/19 marketing year which has provided a buffer for the 2019/20 marketing year.
Zambia’s annual maize consumption is estimated at 2.1 million tonnes. This means that there will be sufficient supplies for domestic consumption, and also maize for the export market. The U.S. Department of Agriculture estimates that Zambia could have 100 000 tonnes of maize for the export market. The balance is the pipeline requirement or carryover stock for the next season.
Why am I giving this background? It is so you can appreciate that there is no maize shortage crisis in Zambia and if the market could have reliable information about events happening in the country’s maize sector, there wouldn’t be fears that end up driving up prices and leading to government interventions.
I am not even a fan of government interventions to markets, and on the Zambian side, I have made a similar point in LSE blog in 2016 when the government banned exports of maize because of worries of possible shortages.
In brief, I noted that policy uncertainty in Zambia remains a key concern, particularly around agricultural market regulation. The then Zambian Agricultural Secretary, Julius Shawa, had cancelled previously issued maize export permits and further insisted that market participants forget the export market and focus only on meeting domestic demand. This move was in response to concerns that maize exports were driving up domestic staple food prices. I noted then, and I still hold this view, that such government intervention does not encourage maize production and broader agricultural development.
Had the Zambian government invested a lot on market information systems which would enhance the price discovery methods and eliminate the fear of shortages of maize, even when that’s not the case, maize prices wouldn’t increase dramatically when there is a lower harvest.
Moreover, infrastructure is also another area that needs improvement so that when there are maize and other agricultural shortages, commodities could be transported to deficit areas timely and cost-effectively. This would lessen the fear of maize shortages.
Zambia needs to look no further for an example to emulate, South Africa is one such country that has a successful maize production.
For the immediate concern, it always helps to remember that the cure for higher agricultural commodity prices is “higher prices”. This is in the hope that higher prices would encourage production in the following season, which ultimately leads to lower and affordable prices. Whereas, placing a cap of commodities prices would drive away investment from the sector. In this case, why should farmers who are blocked from enjoying a fair value for their products continue to invest and expand their operations?
I’ve written this note for Fin24
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by Wandile Sihlobo | Aug 19, 2019 | Africa Focus
The headline of this post captures the consistent question I kept getting from folks after publishing an essay arguing that the recently launched African Continental Free Trade Agreement would potentially open additional avenues for South African products to destinations where the country hasn’t largely participated in over the recent past.
So for a background; on 14 August 2019, we learned that Nigerian President, Muhammadu Buhari, has instructed the country’s central bank to stop providing foreign currency for food imports. President Buhari took it to Twitter to explain his rationale behind this step (see here). In brief, Buhari wants to improve Nigeria’s agricultural production and attaining more food security. And his hope, I think, is that a reduction in imports in the face of solid domestic food demand will be a catalyst for domestic production.
From a South African perspective, Nigeria is potentially an important market because of its purchasing power and population. My hope, as I explained in this essay, was that countries such as Nigeria would in future be areas that South Africa would have to expand its agricultural footprint under the African Continental Free Trade Agreement. This might still hold, but it is not clear how long will the Nigerian government restrict the foreign exchange for food imports.
As things stand, Nigeria’s action will have minimal impact on South Africa’s agriculture and food industry. Over the past five years, Nigeria accounted for a mere 2% of South Africa’s agricultural exports to the African continent. The products involved are apples, pears, prepared food, wines, grapes, fruit juices, sauces and seasonings, amongst other products. While these are high-value products, it’s a small share of South Africa’s agricultural (and food) exports that goes to Nigeria and can be diverted to other markets within the continent where South African has a footprint or in the global market.
What will be interesting to watch over the next few months is whether Nigeria succeeds in this policy approach (Let us face it; there are better ways of improving one’s agricultural sector than limiting foreign exchange for imports. This is a topic for another day). Over the past five years, Nigeria’s agricultural and food imports averaged US$4.7 billion, as shown in Figure 1 below. The products on top of the imports list are wheat, sugar, milk, palm oil, sauces and seasonings, bottled water, apples, pears, maize and vegetables oil.
Figure: Nigeria’s agricultural trade
Source: ITC, Agbiz Research
There is a potential to reduce the imports of some of these products, but this won’t be an overnight event. It will take years of investment in agricultural production and value chain. I will revisit this topic in a few months’ time when we have some evidence on how this policy approach has been accommodated by the Nigerian people and businesses.
The bottom-line view is that this development will have minimal impact over the foreseeable future to farmers in South Africa.
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by Wandile Sihlobo | Aug 12, 2019 | Africa Focus
Droughts or floods always have a devastating impact on agriculture. But the second-round effects on livelihoods are manageable in countries that are economically stable, depending of course on the magnitude of the impact. However, for countries, with economic instability and low capability of mitigation, there is usually a disaster months after the extreme weather events.
The latter is precisely what we are witnessing in Zimbabwe at the moment. For context; Zimbabwe’s maize prospects — their staple crop — are not in good shape because of a drought which delayed plantings at the start of the 2018/19 production season. And when it finally rained, it became rather excessive, as was witnessed during Cyclone Idai at the start of the year.
The maize harvest is currently estimated at 800 000 tonnes, down by 53% from the previous year, according to data from the U.S. Department of Agriculture. The hardships emanating from this poor harvest, exacerbated by unstable economic conditions are being felt across the country.
The World Food Programme now estimates that more than one-third of Zimbabwe’s rural population (or some 3.6 million people) will be food insecure by October 2019. And by January 2020, the figure is set to increase sharply to 5.5 million.
Had Zimbabwe been an economically stable country (with efficient markets, policy and infrastructure), the effects of lower agricultural output would have been buffered by imports, and government assistance to a certain extent.
But this is not the case in Zimbabwe. The economy, political environment and state resources remain fragile. The maize markets cannot function efficiently, as the State’s hand is deep in the maize bag. Just last month, the Zimbabwean government designated the State-owned Grain Marketing Board as a sole buyer of maize from local farmers. Those who attempt to sell their produce outside this arrangement could face a penalty.
Now, while the government might have introduced this measure as a way of ensuring consumers’ well-being after food price inflation galloped to 126.43% y/y in May 2019 (I have discussed this here). It is unlikely to work.
Farmers are withholding their produce, instead of delivering it to the Grain Marketing Board. This leads to the scarcity of maize in the market, and will inevitably not address the government’s concerns of consumer well-being (affordable food).
Regardless of where Zimbabwe’s domestic maize policy ends, the country still needs to import about a million tonnes of maize in order to fulfil its annual needs. It is not clear if this import activity has started yet, as the local authorities have not published any data.
Also, observing from South Africa’s export data, which would be one of the key countries Zimbabwe could source supplies from, Zimbabwe has, thus far, not imported any maize from South Africa within the 2019/20 marketing year which started in May 2019.
Now that the Grain Marketing Board has been designated as a sole buyer of maize from local farmers. It is unclear if this policy will influence private businesses’ maize import activity.
One organisation that might sure make maize purchases on behalf of Zimbabweans in the near term is the World Food Programme. The organisation has recently indicated that it will boost its humanitarian aid to Zimbabwe through to April 2020.
South Africa, Zambia and Mexico could be the potential suppliers of white maize to Zimbabwe. Aside from white maize, there are a number of countries that can potentially supply yellow maize to Zimbabwe, with the most likely ones being Brazil, Argentina, Ukraine and the United States.
These are all initiatives that are yet to materialise. As things stand, there is looming food insecurity in Zimbabwe.
Written for the Daily Maverick.
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by Wandile Sihlobo | Aug 5, 2019 | Africa Focus
The South African agricultural sector, and specifically the expansion in the sector over the recent past, is heavily reliant on exports. In fact, South Africa exports roughly 49% of its agricultural products in value terms. Hence, the newly launched African Continental Free Trade Agreement (AfCFTA) would potentially open additional avenues for South African products to destinations where the country hasn’t largely participated in over the recent past. This would practically mean, an increase in the share of South Africa’s agricultural exports to the continent, rather than mainly focusing on growing other well-established markets.
Moreover, the AfCFTA is expected to make 90% of trade within the continent duty-free by July 2020, and this is set to increase to 97% over the next decade as more duties on an additional number of products are phased down. While some African countries will be deprived of revenue currently derived from trade tariffs, the expectation is that the benefits will exceed the costs, as countries will eventually benefit from trade creation, production diversification, job creation, industrialisation with increased corporate income tax revenue as a corollary, and higher personal income tax revenue.
However, the African continent is beset by other systemic problems such as poor quality or lack of infrastructure, unconducive business environments that make trade across borders particularly costly and nearly prohibitive, corruption and weak institutions which render legal recourse and dispute settlements redundant, among others.
With the AfCFTA providing a potential opportunity to unlock further growth in trade, this will not be possible unless and until the abovementioned issues are sufficiently addressed. The precedent of African countries collaborating politically and economically set by the AfCFTA should translate to deep and fundamental reforms that unlock the existing barriers to intra-regional trade.
The make-or-break of the AfCFTA will come when trade under the agreement officially kicks off in July of 2020. Although the African Export-Import Bank has reserved $100 billion to help member countries alleviate trade adjustment costs and facilitate the creation of a common payment system, concerns still remain. Previous experiences from the Regional Economic Communities such as SADC show that tariff phase-down have been matched with, and exceeded by non-tariffs barriers (NTB), such as the excessive documentation needed for cross-border trade transactions, administrative bottlenecks and stipulated trade quotas aimed at curbing the quantity of traded goods.
The extent of these NTBs effectively reversed the potential gains of the SADC Free Trade Area. In the AfCFTA scenario, policymakers have indicated that NTBs will also be given equipollent attention as its contemporaneous existence could threaten the growth of intra-African trade and impede the effective operationalisation of the AfCFTA.
Overall, this relationship would not be one way. South Africa remains an importer of poultry meat (edible offal of fowls), rice, wheat, sugar, palm oil, soybeans, beer, fish, sunflower oil, soybean oilcake, and tobacco, amongst other agricultural commodities. Ideally, the African countries can also have room to participate in the South African market by supplying these products.
But most African countries do not have the capacity to export significant volumes of the aforementioned agricultural products, at least not to the extent of satisfying South Africa’s import requirement. The onus, however, lies on the Member States and their respective industries to realise that there is demand in South Africa, and start investing in production and providing an enabling environment for such industries to thrive.
With thanks to Tinashe Kapuya, PhD.
Written for and first published by the Agricultural Business Chamber of South Africa (Agbiz)
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by Wandile Sihlobo | Jul 3, 2019 | Africa Focus
In economics, natural experiments are hard to come by, but once in a while, you hit a jackpot without even paying a lottery ticket. For agricultural policymakers in South Africa and the continent at large, the recent developments in Zimbabwe are one such experiment.
On Friday 28 June 2019, we learned that the Zimbabwean government has banned sales of maize by farmers to anyone other than the government’s Grain Marketing Board. This will be at a prescribed price, which we do not know at this point. This move follows a poor harvest after another season of unfavourable weather conditions, which has left Zimbabwe as a net-importer of maize. As I have consistently pointed out in our previous notes, Zimbabwe will need to import about a million tonnes of maize in order to fulfil its annual needs.
On the one hand, the latest move by the government to intervene in the maize market shows a concern for the consumers’ well-being as food price inflation quickens, having reached a rate of 126.43% y/y in May 2019.
On the other hand, these actions could disadvantage the farmers who had hoped that higher maize prices could compensate for yield losses. This will specifically be the case if the Zimbabwean government sets its “maize floor price” below the global maize prices. Historically, there have been instances where the Zimbabwean government set a floor price at levels higher than the global prices. This would have been an advantage for farmers, but delayed payments offset the benefits.
The other point to keep in mind is that the Zimbabwean government, through its Grain Marketing Board has recently issued a tender to buy 750,000 tonnes of maize in order to fulfil its domestic needs. This will be the largest import volume since 2016 when the country imported 1.4-million tonnes of maize. Under this scenario, the Zimbabwean government will have to pay the world price. Hence, I wonder if there will be price discrimination between local farmers and global maize supplies. I doubt this will be the case; my suspicion is that the government is trying to manage its currency liquidity and food price inflation. Having not applied this method, the informal market would price maize at levels above the global traded prices
Possible implications
In the short term, the government’s action to control the maize market could ease price pressures for consumers. In the long run, however, this could disadvantage maize production in Zimbabwe, as farmers would be reluctant to expand production in an environment where government policy is uncertain. Moreover, Zimbabwe will likely remain a net importer of maize, as investments are unlikely to flow in the sector. This would have other implications, such as the agricultural labour market where two-thirds of Zimbabweans are employed. All of this would potentially undermine the short-term food price inflation gains that would have accrued to the consumer due to government control.
Over the coming months, I will be closely observing this experiment to pick up lessons for policymakers in the agricultural sector. What I have observed in the recent past in other African countries was the blockage of maize exports at certain times of the year, supposedly to control domestic food price inflation, but farmers ended up worse off, and that affected expansion in the sector
*Written for and first published on Daily Maverick on 01 July 2019.
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by Wandile Sihlobo | Jun 28, 2019 | Africa Focus
I’ve noticed on the news wires this evening that Zimbabwe has banned its local farmers from selling maize to anyone other than the state Grain Marketing Board as the government moves to keep prices of the staple food down. This move follows a poor harvest after another season of unfavourable weather conditions.
On the one hand, the government’s action to intervene in the maize market shows a concern for the consumers’ wellbeing as food price inflation quickens. On the other hand, these actions could disadvantage the farmers who had hoped that higher maize prices could compensate for yield losses. This will specifically be the case if the Zimbabwean government sets its ‘maize floor price’ below the global maize prices. I am anxiously waiting to see what the decision on this will be.
Another point to keep an eye on is that the Zimbabwean Grain Marketing Board has recently issued a tender to buy 750 000 tonnes of maize in order to fulfil its domestic needs. This will be the largest import volume since 2016 when the country imported 1.4 million tonnes of maize. I haven’t seen any indications of cross-border movement of the grains yet. I suspect that the potential maize suppliers will be South Africa, Zambia, Mexico and Ukraine. And oh, in this case, the Zimbabwean maize buyers (government’s Grain Marketing Board) will have to pay the world price. So, would they discriminate local farmers from the global market? Only time will tell.
You can read more about the Southern and East Africa maize dynamics in my previous post here.
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by Wandile Sihlobo | Jun 24, 2019 | Africa Focus
Sometimes the light comes from the most unusual places. This morning Bloomberg put out a piece noting that Tanzania is set to sell 1 million tonnes of maize to neighbouring Kenya which is facing a major maize shortfall this year.
At first glance, one would think – there is no way Tanzania could export that much maize. After all, its annual production is set to be about 5.5 million tonnes, which is up by 2% from the previous season, against an annual consumption of 5.3 million tonnes. Also, Tanzania has never exported that much maize in its history.
But the thing is, Tanzania has had a really good harvest over the past few years, as illustrated in Figure 1. Over this period, the country managed to accumulate large stocks. Tanzania’s 2019 maize stocks are estimated at 944 000 tonnes, that is if the maize is still in good quality condition.
Figure: Tanzania maize production
Source: USDA, Agbiz Research
So, if one adds the ending-stocks data, with the expected harvest, it is conceivable that Tanzania could emerge as a saviour in this maize supply challenge in Southern and East Africa.
The other idea I was toying with this morning is a possibility of “rice imports” as a substitute for maize in Southern Africa – here is a clip I recorded this morning (video). Then again, rice is way more expensive than maize, which makes it an unlikely substitute for poor nations.
One hopes that Tanzania could really avail the maize supplies to Kenya so that South Africa and possibly Mexico and Zambia’s white maize supplies can largely help cushion Zimbabwe. I gather the Kenyans have already sent a formal request for imports to the Tanzanian authorities. We will now wait in anticipation that some positive news might emerge in this maize maze of Southern and East Africa.
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