Page 1POLICY SYNTHESISfor USAID - Bureau for AfricaOffice of Sustainable DevelopmentNumber 12 March 1996Food Marketing and Pricing Policy in Eastern and Southern Africa: Lessonsfor Increasing Agricultural Productivity and Access to FoodByT.S. Jayne and Stephen JonesFood Security II Cooperative Agreement between U.S. Agency for International Development, Global Bureau, Economic Growth Center,Office of Agriculture and Food Security and Department of Agricultural Economics, Michigan State University Since the early 1980s, donors and international These reform experiments have revealed eightlending agencies have promoted the reform of main lessons:agricultural marketing as a central component ofeconomy wide structural adjustment programs inAfrica. Although the record of implementationhas often been slow and uneven, staple food mar-keting policy has been transformed over thisperiod. The prevailing wisdom was that by lower-ing marketing costs, these reforms would reduceconsumer food prices, raise producer prices, andgenerally stimulate farm technology adoption andagricultural productivity growth.OBJECTIVES: This study surveys the empirical large state budget deficits, which, especially in therecord of grain marketing and pricing policy in current environment of expanded donor influenceselected Eastern and Southern African countries over policy, has been politically and economically(Kenya, Malawi, Tanzania, Zambia, Zimbabwe unsustainable.and South Africa) over the period 1930-1995.The paper addresses five key issues with majorimplications for food policy in Africa: (a) why theanticipated supply response to market liberaliza-tion has not yet occurred; (b) why the common as-sumption of state taxation of farmers to support acheap food policy does not apply in most of thesecountries; (c) why the temporary successes of thestate-led approach to stimulating smallholdergrain production were unsustainable; (d) why theelimination of government food subsidies associ-ated with market reform has not adversely affectedconsumers; and (e) why marketing board deficitshave risen rather than declined after the reformswere initiated in most countries. many cases, these transfers and investmentsFINDINGS: Since the mid-1980s, almost allof the countries of Eastern and Southern Africahave undertaken food marketing reform programs.1. Where smallholder grain production and up-take of hybrid seed and fertilizer have expandedsignificantly since independence (Zimbabwe1980-88; Zambia 1985-90; and to a lesser extent,Kenya 1975-82), this growth has been associatedwith major investments in state marketing infra-structure, credit disbursement, input delivery, andassured outlets for crop sale. However, this state-led model of service provision to supportsmallholder productivity growth has involved2. The assumption that state marketing boardstaxed grain producers to support a cheap food pol-icy, often applied to other areas of Africa, isgenerally invalid in these countries. The control-led food marketing systems of Eastern and South-ern Africa were used to transfer resources andincome to selected farm groups, whose compo-sition has changed over time with the balance ofpolitical power. The transfers took the form ofsubsidies on farm-gate prices in remote small-holder areas through pan-territorial pricing (uni-form prices throughout all parts of the country),concessional credit and subsidized input prices. Inserved to expand grain production beyond levelsthat would have been achieved in an unregulatedmarket environment.FS II Policy Synthesis No. 12 Page 23. The principal driving force behind food marketliberalization in the 1980s and 1990s has been fis-cal crises. These crises have strengthened theleverage which donors and finance ministries havebeen able to exercise over policy. In some coun-tries, reform has also been accelerated by thewithdrawal of support for the state marketingsystem by large-scale farmers. Smallholder farm-er groups have generally opposed market liberali-zation, on the grounds that this would result in awithdrawal of state investments designed to sti-mulate smallholder production and overcome thedualism of the agricultural system inherited fromthe colonial period.4. In each country where pan-territorial pricingpolicies were effectively implemented, importantgroups of smallholder grain producers have been,or will be, adversely affected by the withdrawal ofthe controlled marketing system. However, pan-territorial pricing has imposed important costs onthe grain sector and the wider economy, includingdampening private investment in grain marketing,shifting production from high-potential regionsnear urban centers to lower-potential and remoteregions where it was often not economicallyviable, and discouraging more economic patternsof crop cultivation and labor allocation. Pan-terri-torial pricing in a liberalized market environmentis not sustainable and, as recent experience hasshown, will continue to impose chronic trading de-ficits on the state marketing boards.5. Market liberalization has reduced marketingand processing costs. The benefits of these re-forms have accrued largely to urban consumersand grain-deficit rural consumers, in some casesoffsetting the negative effects of eliminating con-sumer food subsidies. Market liberalization haspositively affected household food security ingrain-purchasing regions. Producers facing lowtransport costs to urban demand centers (mostlylarge-scale farmers) have in some cases benefittedfrom the reforms.6. Although fiscal objectives have been the prin-cipal factor driving reform, marketing board defi-cits have actually increased in every countryexamined after the reforms were initiated exceptSouth Africa. This is because governments havebeen generally reluctant to relinquish control overthe setting of the boards' prices and allow them toreflect market conditions in an increasingly liber-alized market environment. While the need formore flexible price setting in a market environ-ment has been underscored by many of the boardsthemselves, senior politicians continue to exercisecontrol over the marketing boards' price setting inZimbabwe, Malawi, and Kenya. The main con-cern with devolution of price setting authority isthat the more autonomous and commercially-ori-ented boards would (a) increase price volatility byfrequently altering their prices as market condi-tions change, and (b) pay less attention to thesocial objectives historically