Michigan State University, Dept. of Agricultural EconomicsEconomic Reforms and Input Use: A Case Study of ZambiaJulie A. HowardDepartment of Agricultural EconomicsMichigan State UniversityPrepared for Presentation at IFDC International Workshop on Economic Policy Reforms and Agricultural Input Markets: Experiences, Lessons, and ChallengesCapetown, South Africa, October 19, 2000Michigan State University, Dept. of Agricultural EconomicsZambia: Country of Paradoxes• Rich in agricultural resources: adequate rainfall, good soils, abundant land• At core an urban, industrial society. 44% live in cities• Major investments made in agriculture post-Independence through late 1980s • But they did not create a strong foundation for agricultural growth • Impact of reforms also disappointingMichigan State University, Dept. of Agricultural EconomicsPer Capita Agricultural Production 1970-99Per Capita Agricultural Production 1970-99020406080100120140160197019721974197619781980198219841986198819901992199419961998ye ar sindex: 89-91=100Per capita agricultural productionMichigan State University, Dept. of Agricultural EconomicsCommercial Maize Seed and Fertilizer Consumption 1970-9902000040000600008000010000012000070 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98yearsmetric tons fertilizer0200040006000800010000120001400016000metric tons seedfertilizerseedMichigan State University, Dept. of Agricultural EconomicsKey Questions• Why haven’t the reforms worked?• What lessons can be drawn for future agricultural development in Zambia and elsewhere in SSA?Michigan State University, Dept. of Agricultural EconomicsPresentation Outline• Part 1: The Political Imperative of Maize and Fertilizer• Part 2: Reform Process and Impacts• Part 3: Lessons and Future ChallengesMichigan State University, Dept. of Agricultural EconomicsPart 1: The Political Imperative of Maize and Fertilizer• Overwhelming dominance of copper established agriculture as a subordinate sector -- but also created a market for maize • Impact of infrastructure/railway line • Early precedent set for extensive state intervention to achieve policy objectives• Stability of state marketing system attracted small African farmers into commercial maize production Michigan State University, Dept. of Agricultural EconomicsCopper and the Line of RailMichigan State University, Dept. of Agricultural EconomicsKey Policies -- Colonial Period• Migration of African labor from rural villages to urban mines• Maize Control Act (1936) restricts grain movement, establishes monopoly state buying stations in commercial areasMichigan State University, Dept. of Agricultural EconomicsKey Policies -- Post-IndependenceObjectives• Increase domestic maize production to supply urban mining areas with cheap maize meal• Reduce reliance on European farmers by increasing African farmer participation in commercial agriculture• Improve regional equity by increasing market involvement of farmers in more remote provincesMichigan State University, Dept. of Agricultural EconomicsPolicy Mechanisms• Existing parastatal marketing services extended to more remote regions• Pan-territorial, pan-seasonal prices for agricultural commodities and inputs• Depots handled seeds and fertilizer on credit as well as agricultural commodities • Subsidies included--marketing and production subsidies on local fertilizer--price differential subsidies on imported fertilizers--marketing subsidies to marketing board agents--maize meal coupons to urban consumersMichigan State University, Dept. of Agricultural EconomicsImpact of Policies (+)• Maize production increased by 137 percent between 1975-79 and 1985-89; smallholder share rose from 60 to 80 percent• Credit programs reached 1/4 of smallholders• Fertilizer consumption quadrupled between late 1960s and late 1980s; fertilizer consumption in remote areas increased from 15 to 39% of total• Hybrid maize planted on 60% of smallholder area by early 1990s; improved seed+fertilizer increased yields by 46-64% over local seed, no fertilizerMichigan State University, Dept. of Agricultural EconomicsImpact of Policies (-)• The marketing system was costly:--Prices set with inadequate consideration of actual costs of transportation and handling --By 1970s, no substantial area of the country where less than 50% of small farmers grew maize--Pan-seasonal pricing discouraged on-farm storage--Cooperatives were inefficient service providers• Namboard/cooperatives became heavily dependent on subsidies; gov’t delays in transferring funds caused cash flow problems throughout the system.• Problems carried over to the following season. Delays in receiving guarantees/funds delayed input deliveryMichigan State University, Dept. of Agricultural EconomicsPart 2: Reform Process and ImpactsMotivation for reforms• Declining copper revenues• Increasing indebtedness• Maize subsidies consumed 19% of gov’t budget by late 1980s• Macro and agricultural policies under increasing attack from int’l and domestic sourcesMichigan State University, Dept. of Agricultural EconomicsReforms (1)• Macroeconomic reforms in 1983--20% devaluation and forex auction--gen’l decontrol of nonag prices--increased interest rates--budget cuts• Food and ag sector--con’t control of producer prices and parastatal mkting --price subsidies on fertilizer cut--maize meal price increases spark urban riots in 1986 and 1990, prompted rescinding of Zambian agreement with IMF on reform packageMichigan State University, Dept. of Agricultural EconomicsReforms (2)• Chiluba’s election in 1991 made broader ag reforms possible• Beginning in 1992-93, GRZ largely ended the parastatal system and began to encourage greater private-sector activity in commodity and input marketing• Parastatals NCZ and Zamseed slated for privatizationMichigan State University, Dept. of Agricultural EconomicsImpacts (1)• Foreign-based fertilizer companies (e.g., Omnia, Kynoch, Sasol, and Norsk Hydro) began to import fertilizer in 1992, greatly expanding the number of fertilizer products available • Number of maize hybrids and OPVs available to farmers doubles 1992-99, following entry of Cargill, Pannar, Pioneer, Carnia, Maize Research Institute, Seedco • Input companies carry out their own trials of fertilizers, new varieties but only in sites close to the line of rail• Increasing crop