False Promise or False Premise? The experience of Food and Input Market Reform in Eastern and Southern Africa

By Jayne, T. S. et. al.

Presentation By:Chitembo Kawimbe Muhammed Hassan

Aubrey Tabuga

Overview

1.Introduction2.Controversial aspects of agricultural

market reform 3.Determinants and path of the reform

implementation.4.Key challenges for the future5.Conclusion6.Discussion/Question and Answer

Introduction• African countries undertook agricultural

reforms in the early 1990’s as part of SALs programs

• These reforms were supposed to improve productivity but literatures are inconsistent as some say the reforms worked while others do not.

• The paper attempts to reconcile the divided and inconsistency of literatures on effect of agricultural market reform in Africa.

• It argues that the source of the controversy is due to the assumption that these countries have undergone market reform.

False Promise?

Basic Reform Policy Package:• Privatization- withdrawal of state

agencies from grain pricing and marketing activities

• Liberalization – relaxation of regulatory controls on private marketing

Objective:• To induce agricultural growth

False Promise? (Cont’d)

However, agricultural growth in the1990s has been unimpressive (for mosteastern and western African countries)• High population growth in post-reform

period resulting to lower per capita production

• Weak marketing institutions• Policy reform was not sufficient or not

implemented

False Premise?

• The reason behind the poor track record of the policy reform is that “many of the most fundamental elements of the process either remain unimplemented or were reversed within several years.”

False Premise: Zimbabwe

• 1993: Grain Market Reform (WB/IMF Structural Adjustment Loan Program)

• 1998: Government reimposed controls on maize meal prices, the GMB remained dominant buyer of grain throughout the reform process

• 2001: GMB retains exclusive monopoly over maize trade and gov’t bans all private maize trade impeding private investment at some key stages of the supply chain

False Premise: Zambia

• 1990-1991: NAMBOARD was abolished and Economic SAL Program initiated

• 1992: Government designated various parastatal or private companies to distribute fertilizer on behalf of the government

• 1997-1998: FRA became largest distributor of fertilizer, prices were also controlled making private sector fertilizer uncompetitive

False Premise: Zambia

• 1999-2000: Government contracts private firms to import and distribute fertilizer at subsidized prices (in response to WB condition)

• Government selection of recipients of the subsidized fertilizer lack transparency

• Virtually no fertilizer importers and wholesalers operate in Zambia other than these firms

False Premise: Ethiopia

• 1995: Government agreed to liberalize fertilizer market, curtailed operations of the state marketing board (aid conditionality) but also permitted creation of regional holding companies which enjoy near monopoly rights over distribution of fertilizer;

• Regional governments raised barriers for private sector in fertilizer market that private companies were forced to exit

False Premise: Ethiopia

• 1996: Government announced decontrol of import and wholesale prices but maintained retail control prices

• 1997-2000: Retail control prices were relaxed but regional holding companies and state fertilizer marketing firm still own bulk of total market share

False Premise: Kenya

• 1986: Government agreed to implement reform (WB Agricultural Sector Adjustment Program)

• 1988-1991: Government relaxes movement and price controls on private maize trading but state-run NCPB continued setting fixed prices for producers and consumers; all commercial millers were obligated to purchase portion of their supplies from NCPB; maize meal prices fixed by the government

False Premise: Kenya

• 1992: Government reimposed restrictions on private maize movement and trade

• 1998: Tariffs on maize imports increased

• 1999-2000: Maize stabilization policy continued

Summary: Case Studies

• Many policy barriers remained thus inhibiting the development of competitive input and commodity markets

• These cases illustrate how in principle, market reform can be implemented but in fact, governments maintain control over the market.

• Conclusions that reform has failed to produce intended effects may be inappropriate because they are based on a false premise that reform occurred.

Path of Reform Implementation

• Some governments have been committed to a program of market reform (maize and fertilizer marketing in Mozambique and Uganda; Mali, Ghana, and Tanzania

• Some countries have openly resisted reform or reimposed controls after some experimentation with reform (ex. Maize in Zimbabwe)

• De jure reform and de facto state control of marketing (ex. Zambia)

Path of Reform Implementation

• Some African governments have managed to restructure the role of the state in markets, remove policy barriers to private trade and nurture key marketing institutions

• Others have achieved very little private sector response despite at least a decade of attempts

Determinants/Factors

Fiscal Crisis:• Forced governments to accept the

conditions of donors to gain access to external financing

• Some leaders openly resisted agricultural reform when state budget deficits were manageable but later accepted reform after they reached crisis proportions

Determinants/Factors

Political Harm:• Genuine concerns over the effects of

the reforms on constituents’ welfare• Efforts to articulate the rationale for

reform• Clientelism and Patronage

Framework of Government Reform Implementation

Patronage activities

II. Transparent

reform

I.Non-issueIII.Transparent resistance to reform

IV. De jure reform

De fact control

Degree of Economic Crisis

Key Challenges for the Future• There are three main challenges for donors,

governments and researchers to work together in developing agricultural marketing systems that contribute to economic development. Seeking convergence on the empirical

record – policy debates over effects of reforms will be difficult to resolve until clarity emerges from academic literature

Building political support for constructive agricultural market reform Donors should revisit the conditionality

requirement of aid as this has failed to deliver

Key Challenges (cont’d.) High income behavior in international

agreements, many patronage problems described in the paper are also present in high-income countries. Local ownership of the reforms is likely influenced by the perception that reform is being set uniformly around the world

Key Challenges (cont’d.) Designing sustainable input, credit and

output markets to catalyze smallholder productivity and income growth – reduction in transaction costs, kin-based trading networks are still prevalent and need reduction, poor transport and communications restrict the scope of markets and increase risk of commercialized production, scanty supply of credits for commercial production

Conclusion

• There still remains substantial controversy over the effects of agricultural reform in Africa

• This controversy arise from different perceptions as to whether the reforms were actually implemented

• There are however great variations in implementation of the reforms

Comments/Questions• The countries were asked to implement the

reforms so abruptly when private sector participation in the economies were very low and in some cases not present. This should have been empirically studied to see its effect on implementation of these reforms

• It would have been more helpful if the paper elaborated key aspects of the aid conditionality model

• What’s the motive of aid/SALs?Is it to create donors’ own market? (ex. Food aid)

Comments/Questions (cont’d.)• One notable criticism of the early reform

programs was assuming that markets would blossom if only freed of policy constraints without emphasizing roles of the appropriate institutions and infrastructure

• The literature “divide” appears to depend on which side researchers are. It is common to see this pattern when you look from various perspectives (studies from donors’ side tend to emphasize more on benefits while those from civil societies tend to make criticisms).

Comments/Questions (cont’d.)

There are constraints that need to beovercome to help make the literaturesconverge and earn support from civil societiesand international community• Organizational and career incentives to

“move money”• Protectionist policies of OECD countries

HICs must practice what lenders (WB) preach.

• Local researches must be utilized

Comments/Questions (cont’d.)

• One reason that made it difficult for some African countries to implement market reform can be that mentality about socialism was still prevalent

• The finding of the market failures has often been confused with failure of the private sector

Comments/Questions (cont’d.)

• Is the market failure and private sector failure similar or different?

• What causes market failure unsolved policy barrier or under investment of publicly-provided goods and market institutions?

• How de jure (promised reform) market reform can be in such way as to maintain de facto control over the system?