Southern Africa: Balance between free market and state-run food security needed

JOHANNESBURG, 14 February 2007 (IRIN) - Southern African countries have shown willingness to experiment with liberalising the agriculture sector, but food security experts feel that some form of government intervention is still required to prevent hunger in the region.

State involvement in food production varies between extremes: Zimbabwe not only controls food markets and prices but also provides agricultural inputs to its farmers; Mozambique "has a very unsupportive policy environment" and the "food sector is largely undeveloped", according to 'The Political Background to Policy Failure', a study by the Forum for Food Security in Southern Africa of the UK-based Overseas Development Institute (ODI).

"Free markets in food may work well, but there would still be a public role to correct for undesirable outcomes," said the 'Review of lessons learnt on food security responses in Southern Africa', prepared by Nick Maunder and Steve Wiggins for humanitarian agencies. The paper suggested a consensus position between advocating government intervention in food markets and allowing private enterprise to operate in free markets.

Some countries in the region, notably Malawi, have burnt their fingers in attempting to open the sector, but liberalisation in Malawi was procedurally flawed and tainted by corruption. Structural adjustment policies, pushed by the International Monetary Fund and the World Bank, promoted the privatisation of ADMARC, Malawi's state grain marketer, in the 1990s. The National Food Reserve Agency (NFRA) was created to manage the strategic grain reserve (SGR), and the private sector was to take over ADMARC's marketing function.

In reality, the transfer of authority was not completed, and no memorandum of understanding was signed between the two entities. ADMARC retained a role in managing the SGR, which led to the sale of SGR maize by ADMARC in 2001, without the NFRA's knowledge, just as drought hit farmers. The result was a maize shortage, high prices and devastating hunger. Senior officials were found to have been involved in the sale of the maize. Since then, government has retained control of ADMARC.

Besides management issues, "market liberalisation by itself is insufficient to address food security at household level, as the majority of smallholders in Malawi do not have ready access to markets", said Mazlan Jusoh, country representative of the United Nations Food and Agriculture Organisation (FAO) in Malawi. "There is inadequate rural infrastructure, and the purchasing capacity in the rural areas is low.
Markets are thin and cannot be assured."

The government's strategy to intensify maize production, the staple food, to create surpluses and, ultimately, economic growth, had not been realised because production levels had been low and the rate of population growth had outpaced economic growth, he added. "As a result, government has recognised the need for input subsidies and food aid."

Emphasising that food security could not be left to the market alone, Jusoh commented that markets "too often fail in providing maize to households with a shortfall in home production, and insufficient cash to buy food at times of shortage". Moreover, the market could not always supply sufficient maize in the right volume and at the right time, as past experiences had witnessed, when production was low in the country and region.

He pointed out that cross-border markets had also failed to deliver food security in Malawi and this, together with the vagaries of rainfall, had caused the SGR to be set up.

According to the ODI study, "Minimal state intervention is not necessarily desirable, and agricultural markets in Southern Africa, left on their own, are unlikely to work perfectly. However, policy analysts and development advisors should anticipate political manipulation and build this into their calculations."

The study argued that neither a pro-state interventionist stance nor a pro-market liberalisation stance would work in Southern Africa, because either could be "distorted by a tendency for public resources to be diverted for private or political gain, and for public policies to be steered by the wish to maintain those opportunities. In consequence, policies will not be pursued consistently, and the most vulnerable are the least likely to be protected".

However, the FAO's Lewis Bangwe pointed out that liberalisation of the sector in Zambia had been successful. "The economic policies and strategies, as applied in Zambia, have remained dynamic and have emphasised a gradual and managed transition from direct involvement by the public sector, coupled with capacity building for improved private-sector engagement in the provision of agricultural marketing and input supply services."

Bangwe added that agricultural commodity and input prices had been freed, and subsidies removed, except for fertiliser and seed for a targeted group; agro-parastatals had been privatised or dissolved, except for the Food Reserve Agency, which was a state entity.

Opening up the sector had brought diversified crops and an increase in the number of commercial farmers, he said. "The number of small-scale farmers in private-sector-driven outgrower- and contract-farming arrangements has risen to over 200,000 in ctton, sugar, tobacco, vegetables, cut flowers and spices."

This had led to a rise in non-traditional exports. "Moreover, diversification into profitable, less costly and drought-tolerant crops has happened. Annual production output for cassava, sweet potatoes, beans, groundnuts, sunflower, sorghum and millets has gone up, stabilising food security for smallholders."

On the other hand, Bangwe said, poor infrastructure, crop and livestock diseases, HIV/AIDS, dependence on rain-fed production and poorly developed markets had caused distortions in who benefited and who lost out; smallholder farmers in outlying areas were yet to reap the full benefits of liberalisation. "This is the major justification used by government for the continued presence of the public intervention in the agricultural sector, and for maintaining strategic food reserves."

The analysts agreed that, faced with frequent droughts and the duality of farming - small-scale farmers at one end and commercial cash-crop plantation owners on the other - the governments in the region should maintain and control SGRs.

Jones Govereh, a researcher with the Food Security Research Project, a cooperative venture between Zambia's Ministry of Agriculture, the Michigan State University and other organisations, pointed out that Zambia was a land-locked country and faced high transport costs to the coast, so it could not rely on private trade alone to off-set production shortfalls and maintain stable maize prices; the maize belt was also prone to frequent droughts. "In case of any calamity, the nation needs stock to cover the period when imported stocks are in transit."

Cash transfers?

But in the case of Malawi, where "management has been weak and costly, and there have been cases of profiteering," Jusoh said, "the question raised is whether there are other ways of reaching the most vulnerable households". The Malawian government was considering direct cash transfers, but this "also raises issues of the availability of food for these households to purchase, and the possibility of inflation. There are also high levels of administrative costs related to targeting".

Jusoh suggested a study to examine the costs, benefits and risks involved in promoting cash transfers, as opposed to food aid, and cautioned that "the decisions regarding quantities to be released and selling prices also have the potential to disrupt markets and undermine the private sector".

According to the review paper on food security, results from the pilot cash transfer schemes in Malawi showed that the cash had not inflated the cost of staple foodstuffs and was more cost effective than imported food aid: most of the cash was used to meet immediate food requirements and other basic needs, such as transport costs to collect antiretroviral medication.

"However, such pilots have dispelled the hypothesis that cash is uniformly preferable to food aid. In times of staple price inflation, or where food availability is constrained, it remains preferable to make transfers in kind," the paper commented.

The analysts suggested a fine balance between a pro-state and a pro-market stance. Bangwe recommended a "managed transition", in which efficient private-sector-based growth was stimulated, while efforts to retain broad-based growth in the agriculture sector were aimed at poverty reduction.

"The strategy could be to liberalise the food economy and provide cash safety nets for the most vulnerable households," said Jusoh. "It is important, however, that the implementation of immediate short-term welfare strategies do not undermine the longer-term goal of developing the market and the private sector. This calls for well-designed safety net programmes."