Stabilizing food markets in eastern and southern Africa

Transcription

1 Food Policy 31 (2006) Stabilizing food markets in eastern and southern Africa T.S. Jayne a, *, Ballard Zulu b, J.J. Nijhoff b a Michigan State University, Department of Agricultural Economics, Agriculture Hall, East Lansing, MI , United States b Food Security Research Project, Lusaka, Zambia Abstract A major challenge for agricultural policy in Africa is how to address the market instability-related causes of low farm productivity and food insecurity. This paper highlights structural changes affecting the behavior of food markets in eastern and southern Africa and discusses their implications for the design of strategies to stabilize food prices. These changes include (1) an increasing trend in maize prices toward import parity levels, reflecting an emerging structural maize deficit in much of the region; (2) increasingly diversified food consumption patterns in both rural and urban areas; (3) highly concentrated marketed maize surplus, which have largely unrecognized implications for the magnitude of price risk faced by most farm households; and (4) the strategic interactions between private and public marketing actors leading in some cases to heightened market instability and food crises. In the prevailing dual market environment now characterizing most of the region, greater coordination, transparency, and consultation between private and public market actors is needed to achieve reasonable levels of food price stability and predictability. Ó 2006 Elsevier Ltd. All rights reserved. Keywords: Food markets; Eastern and southern Africa; Maize; Market instability; Food security Introduction Driven mostly by fiscal crises, many countries in eastern and southern Africa since the early 1990s have initiated erratic transitions from controlled food marketing systems to * Corresponding author. Tel.: ; fax: address: jayne@msu.edu (T.S. Jayne) /$ - see front matter Ó 2006 Elsevier Ltd. All rights reserved. doi: /j.foodpol

2 dual systems in which the government and private sector both operate directly in food markets. There is widespread agreement that the food marketing policy environment over the past decade has not effectively supported agricultural productivity growth for the millions of small farmers in the region (Dorward et al., 2004). Food price instability is frequently identified as one of the major impediments to smallholder productivity growth and food security (Pinckney, 1993; Gabre-Madhin et al., 2003). Uncertain output prices coupled with risk-averse farmer behavior depresses incentive to adopt cash inputs. Moreover, several countries have been unable to prevent food prices from exceeding import parity levels in certain years, precipitating extensive hunger. Redressing these instabilityrelated causes of low productivity and food insecurity are major challenges facing African policy makers. The question of how to reduce food price risks and uncertainty quickly brings us to the role of the state and private sector in markets. A large literature has diagnosed the limitations of past government and market-led efforts to stabilize food prices (Jayne and Jones, 1997; Meerman, 1997; Kherallah et al., 2002). Attempts at market reform in most of eastern and southern Africa have been partial and subject to reversals. State marketing boards have continued to play a major role in many countries food markets through the reform process. This paper will not repeat the lessons learned from past experience, but rather identifies major new developments and structural changes affecting the behavior of food markets in the region and discusses their implications for the design of strategies to stabilize food prices. Food markets in eastern and southern Africa have undergone many changes over the past two decades. Governments ability to develop cost-effective approaches to dealing with instability requires taking account of these changes. These changes include (1) an increasing trend in maize prices toward import parity levels, reflecting an emerging structural maize deficit in much of the region; (2) increasingly diversified food consumption patterns in both rural and urban areas; (3) highly concentrated patterns of marketed maize surplus; and (4) taking cognizance of the dual structure of food marketing systems and, following from this, the coordination required between private and public market actors to achieve reasonable levels of price stability and predictability. The paper focuses mainly on Zambia, Malawi, Kenya, and Ethiopia, with occasional references to other countries in the region. Trends in maize prices toward import parity T.S. Jayne et al. / Food Policy 31 (2006) Maize production has failed to keep up with population growth over the past four decades. As a result, most eastern and southern African countries have become net importers of maize. Using FAOStat data between 1961 and 2004, and regressing net maize plus maize meal exports on a constant and time trend, we find significantly (p =.10) negative trends for Botswana, Kenya, Lesotho, Malawi, Mozambique, Namibia, South Africa, Swaziland, Zambia, and Zimbabwe; a negative but insignificant trend for Tanzania; and a positive but insignificant trend for Uganda. Time trend coefficients are significantly negative for both eastern and southern Africa as aggregate regions, 1 indicating that these regions maize net imports are increasing at a rate of 8000 and 69,000 metric tons per year 1 The east Africa region includes Burundi, Ethiopia, Kenya, Rwanda, Tanzania, and Uganda, while the southern Africa region includes Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Zambia and Zimbabwe.

3 330 T.S. Jayne et al. / Food Policy 31 (2006) US$ per metric ton import parity from South Africa Lusaka Choma Kabwe Kasama time trend, Lusaka Fig. 1. Wholesale maize prices, Zambia, and import parity levels from South Africa. Linear Lusaka price trend based on OLS regression results: Price = (8.98) (3.11) time trend. R 2 = 0.06, F = t-statistics are in parentheses. Source. Ministry of Agriculture and Cooperatives, Government of Zambia, and transport cost data from local transporters. (for details, see Jayne et al., 2005). The reasons for the gradual trend toward structural deficits include slow uptake of improved crop technologies, erratic weather, urbanization, shifts in crop mix toward cassava and higher-valued crops, changes in maize policies in South Africa which have reduced the exportable maize surplus in that country, and political turmoil in Zimbabwe which has changed that country from a reliable exporter to a chronic importer. Maize prices in much of the region reach import parity levels with increasing frequency. This is especially true in the landlocked areas of southern Africa. Maize prices for Lusaka and Lilongwe (the capital cities of Zambia and Malawi), show positive and statistically significant trends from 1993 to 2005, in contrast to a declining trend in import parity prices (Figs. 1 and 2). In recent years, and especially after the inception of political and agricultural turmoil in Zimbabwe in the late 1990s, South Africa has become the only reliable exporter of white maize in the region. Areas of Mozambique, Zambia, and Malawi typically produce white maize surpluses, but these surpluses are usually depleted halfway through the marketing year. Urban and rural maize deficit regions have become increasingly dependent on South Africa for their residual national white maize requirements. Since 1998, 92% of the white maize imports to Malawi, Zambia, and Mozambique have come from South Africa (FAO- STAT, 2005). 2 A movement in trend maize prices toward import parity does have a silver lining. If import parity represents the upper bound of prices, which assumes that government and 2 It is noted that FAO has difficulties in estimating informal trade flows, and it is likely that these countries import share from South Africa would be lower if informal trade were more accurately measured.

4 T.S. Jayne et al. / Food Policy 31 (2006) US$ per metric ton import party from South Africa Lilongwe Karonga Rumphi time trend, Lilongwe Fig. 2. Retail maize prices, Malawi, and import parity levels from South Africa. Linear Lilongwe price trend based on OLS regression results: Price = (5.75) (2.06) time trend. R 2 = 0.04, F = t-statistics are in parentheses. Source. Ministry of Agriculture, Government of Malawi, and transport cost data from local transporters. private traders can coordinate to import grain when needed, then the distribution of domestic prices over time will be increasingly truncated on the high end. Part of the historical rationale for food price stabilization policies in the region was to protect consumers from the food insecurity consequences of dramatic food price spikes, often above import parity. An increased trend toward import parity in the region will reduce the degree of fluctuation between prices in a normal year and prices in drought years. A movement toward import parity would also stimulate maize production incentives. However, rising poverty in the region means that large portions of the rural and urban population will not be able to adequately meet their food needs when staple foods are priced at import parity levels. Thus, the food security problem is not simply how to stabilize prices of staples but how to ensure that those without purchasing power are able to weather episodes of high prices or market disruptions without enduring chronic hunger or asset shedding that would erode their future productivity. Strategies for protecting poor consumers access to food are considered in the final section. Changes in food consumption patterns Food production and consumption patterns have changed markedly over the past decade. The former dominance of white maize has given way to more diversified food systems. In many rural areas of Malawi, Zambia, and Tanzania, cassava cultivation has increased dramatically (Fig. 3). 3 The rise of cassava is not unrelated to maize policy. The elimination 3 OLS time trends showed annual increases of 1906, 7144, and 5231 ha of cassava in Kenya, Malawi, and Zambia, respectively, with t-statistics of 3.74, 3.66, and 7.68.

5 332 T.S. Jayne et al. / Food Policy 31 (2006) hectares Kenya Malawi Zambia Fig. 3. Trends in Area to Cassava, Kenya, Malawi, and Zambia, Source. FAOStat, December of pan-territorial maize pricing policies in the region has reduced the profitability of surplus maize production in remote areas. Cassava production has risen substantially in many of these areas. The increasing role of cassava, a drought tolerant crop that can be stored in the ground, provides new potential to stabilize food consumption in the face of maize production shortfalls (Nweke et al., 2002). The availability of a drought-tolerant crop that is less prone than maize to extreme production fluctuations provides some relief in the degree to which maize supplies can fluctuate from year to year without seriously aggravating food insecurity. There are also important trends toward more diversified food consumption patterns in urban areas. Recent urban consumption surveys in Nairobi, Maputo, and the Umtata area of eastern Cape, South Africa attest to the rising importance of wheat and rice products in food consumption patterns (Muyanga et al., 2005; Tschirley et al., 2005; Traub, 2005). In all three surveys, wheat and/or rice was the main staple expenditure item of urban consumers, although in Nairobi, the poorest 40% of households still spent more on maize products than any other staple. Maize is still the dominant food crop in most of the region, but the rising importance of other staples that are widely traded on world markets and consistently available at import parity levels will increasingly contribute to more stable food expenditure patterns over time. Moreover, increased diversification in food production and consumption patterns has likely diluted the wage-good effects of maize price fluctuations on the overall economy. Another major change has been the expanding world market for white maize. Until recently, the world white maize market was thinly traded. The rationale for some level of local stockholding is compelling in such cases. However, in recent years, white maize has become much more heavily traded due to the effects of the North American Free Trade Agreement, which, since 1997, has induced a large white maize supply response in the USA (Tschirley et al., 2004). These developments have reduced the probability that white maize supplies would be unavailable when the Southern Africa region experiences a

6 T.S. Jayne et al. / Food Policy 31 (2006) drought, and thus reduces the rationale for keeping large government strategic reserves. This would especially be the case under a scenario of increased government and donor expenditure on regional transport infrastructure (ports, rail, and road systems). More concentrated marketed maize surpluses driven by declining landholding size Average farm size in Africa is declining gradually but steadily due to population growth. Mean farm size in Malawi, Zambia, Kenya, Ethiopia and Rwanda is roughly half of what it was 40 years ago (Jayne et al., 2003). Moreover, according to national household surveys in these countries, there are large disparities in land distribution within the small farm sector. While mean land holdings in the small farm sector vary between 2.5 and 3.0 ha in Kenya and Zambia to around 1 ha in Rwanda and Ethiopia, in each coun- Table 1 Mean household attributes by landholding size quartiles Country (survey year) Household attribute Mean landholding size (ha) Quartiles of farm size Kenya 2000 Landholding size (ha) Gross value of crop sales (2000 US$ per hh) Household income (2000 US$ per capita) Off-farm income share (%) Ethiopia 1996 Landholding size (ha) Gross value of crop sales (1996 US$) Household income (1996 US$ per capita) Off-farm income share (%) Rwanda 2001 Landholding size (ha) Gross value of crop sales (1991 US$ per hh) Household income (1991 US$ per capita) Off-farm income share (%) Mozambique 2002 Landholding size (ha) Gross value of crop sales (2002 US$ per hh) Household income (2002 US$ per capita) Off-farm income share (%) Zambia 2000 Landholding size (ha) Gross value of crop sales (2000 US$ per hh) Per capita income (2000 US$ per capita) Off-farm income share (%) Source. Nation-wide agricultural household surveys implemented by national statistical agencies (see Jayne et al., 2003 for details).

7 334 T.S. Jayne et al. / Food Policy 31 (2006) try, the bottom 15 20% of small-scale farm households are approaching landlessness, controlling less than 0.5 ha (Table 1). In Ethiopia and Rwanda, farm households in the bottom land quartile controlled less than 0.20 and 0.32 ha. In Malawi, 80% of all smallholder households possess less than 1 ha of land. These disparities in landholding size (and differences in agro-ecology and proximity to markets) give rise to a highly concentrated pattern of marketed staple food output from the small farm sector. From these nationwide surveys, rural small-scale farm households generally fall into one of the following four categories (Table 2): 1. Sellers of staple grains, accounting for 20 35% of the smallholder farms in a given year. This figure will rise in good harvest years and fall in a drought year. There are two subgroups within this category: A small group of relatively large and capitalized smallholder farmers, with 4 20 ha of land (usually 1 3% of the total farm population), located in favorable agro-ecological areas, accounting for 50% of the marketed maize produced by the smallholder sector. These farms sell between 5 and 50 tons of maize per farm in a given year, and have, on average, two to five times more productive assets as non-maize selling households, two to seven times as much total household income, and three to eight times more gross revenue from the sale of all crops. A much larger group of smallholder farms (10 20% of the total rural farm population) selling much smaller quantities of grain, between 0.1 and 5 tons per farm. These households tend to be slightly better off than households that buy grain, but the differences are not very great in absolute terms. 2. Buyers of staple grains, accounting for 40 60% of the rural population, higher in drought years. These households generally have smaller farm sizes, lower incomes and asset holdings than the median rural household. They are directly hurt by higher mean grain prices. Table 2 Distribution of small-scale farm population according to their position in the staple grain market, selected countries Household category with respect to main staple grain Zambia (maize) Mozambique (maize) Kenya (maize) Malawi (maize) Ethiopia (maize and teff) % of rural farm population 1. Sellers only top 50% of total sales a bottom 50% of total sales b Buyers only na Buy and sell (net buyers) 3 12 c 7 na 13 Buy and sell (net sellers) 5 12 na Neither buy nor sell na 2 100% 100% 100% 100% 100% Sources. See Jayne et al., a After ranking all households by quantity sold, this row shows the percentage of households in the smallholder sector accounting for the first 50% of total maize sale. b Percentage of households accounting for the other 50% of total maize sales. c The survey in Mozambique was not able to ascertain quantities of maize purchased therefore whether these households are net buyers or net sellers in unknown.

8 T.S. Jayne et al. / Food Policy 31 (2006) Households buying and selling grain within the same year: In all of the nationwide surveys, only 10 20% of all households both buy and sell maize in the same year. 4 This group includes both wealthier farmers who sell grain and buy back lesser amounts of processed meal, as well as relatively poor households that make distress sales of grain after harvest only to buy back later in the season. 4. Households neither buying nor selling maize: these households make up a small proportion of the rural population in areas where maize is the dominant staple crop. However, in parts of northern Zambia and Mozambique, cassava is the main staple. Because of this, a sizable fraction of the rural population at the national level is autarkic with respect to maize. These findings hold several important policy implications. First, grain price supports or stabilization policies that involve altering mean price levels over time (as they usually do), can have income distributional effects that may run counter to stated poverty alleviation goals. To the extent that the poor are net purchasers of staples such as maize, wheat, and rice, they are directly hurt by policies that raise prices of these commodities. 5 Mean-neutral forms of price stabilization would most likely avoid these adverse distributional effects, and would also help to promote diversification toward higher-valued crops by maize purchasing households (Fafchamps, 1992). Second, strategies to link African farmers to markets must take account of the inequality in productive assets, which contribute to highly concentrated patterns of agricultural surplus generation within the smallholder sector. Third, there is need for greater differentiation of the small farm sector when considering the effects of price instability on incentives to purchase cash inputs. Some analysts have contended that rural households face wide price swings between export parity and import parity depending on the weather. However, because most farm households do not sell maize even during years of favorable weather, they rarely if ever face export parity prices. Their incentives to use inputs such as fertilizer and hybrid seed are more closely related to the opportunity cost of not producing enough in a given year and having to rely on the market to purchase maize or maize meal (Jayne, 1994). Therefore, the price instability that these households face is related to fluctuations in retail prices, which is much smaller in magnitude than price swings between export parity and import parity levels. Coordination between government and private sector in politicized food policy environments Despite the widespread perception that food markets have been liberalized (a very vague term indeed), governments in much of eastern and southern Africa continue to intervene heavily in food markets. Governments pursue price stabilization objectives through two main routes: (1) marketing board operations, and (2) discretionary use of trade policy instruments such as export bans and frequent changes in import tariff rates. 4 This empirical regularity contrasts with the common notion that, because of lack of credit, farmers typically sell at harvest at low prices and buy back latter at higher prices. 5 Of course, a general equilibrium approach, taking into account indirect effects on welfare through labor markets, would need to be undertaken before the welfare effects of mean-altering price policies could be fully understood.

9 336 T.S. Jayne et al. / Food Policy 31 (2006) Marketing board operations Marketing board operations have generally been more modest in recent years than during the pre-control period. However, they continue to be major actors in their countries maize markets. Using data provided by the national marketing boards between 1995 and 2004, the boards annual purchases have fluctuated from an estimated 15 57% of the domestic marketed maize output in Kenya, 3 32% in Malawi, and 11 45% in Zambia (Jayne et al., 2005). These figures understate the boards full impact on markets because they do not count their often sizeable maize imports and subsequent release onto domestic markets. Because the boards are typically the largest single player in the market and often behave unpredictably, their operations can create major risks and trading losses for other actors in the market. Discretionary use of trade policy instruments In addition to direct involvement in crop purchasing and sale at controlled prices, governments influence markets and marketing participants behavior through discretionary trade policy instruments such as export bans, changes in import tariff rates, and government import programs. Governments attempts to stabilize prices for the poor can make maize prices more volatile. This is exemplified by the Government of Malawi s response to an anticipated maize production shortfall in the 2001/2002 season. Malawi faced a modest maize production deficit for its 2001 harvest, 8% below the country s 10-year mean. In September 2001, the grain trading parastatal, ADMARC, announced a fixed price for maize to be sold at its distribution centers and announced its intention to import maize from South Africa to defend this price (Rubey, 2004). Because ADMARC s selling price was considerably lower than the landed cost of importing maize, private traders had little incentive to import maize in this environment. However, the government imports arrived late and were not sufficient to meet demand. As a result, ADMARC depots began to experience stock-outs, and prices soared. When it became clear that ADMARC s supplies were insufficient to last the full season, private traders scrambled to import, but for several months much of rural Malawi experienced grain shortages and prices were reportedly as high as $500 per ton in early 2002 (Fig. 2). This case illustrates that well-intentioned but poorly implemented government actions can exacerbate food price instability rather than reduce it. Similar problems arise due to uncertainty about when and whether governments will alter their import duties in response to a short crop. Traders that mobilize imports early are likely to face losses if the duty is later waived and competing firms (or the government parastatal) can import more cheaply. When governments create uncertainty over import tariff rates during a poor crop season, the result is commonly a temporary under-provision of imports, which can produce a situation in which local prices exceed import parity levels for periods of time (Nijhoff et al., 2003). Analysts not familiar with the details of these situations often erroneously interpret them as evidence that markets fail and that the private sector is weak, leading to a rationale for continued direct government involvement in marketing. The marketing boards in Malawi, Kenya, Zambia and Zimbabwe frequently import maize in volumes that are large compared to the size of the market, and sell at prices

10 considerably below the cost of commercial importation. The expected return to private storage in this policy environment is considerably different from what it would be if prices were allowed to rise fully to import parity. Because governments often attempt to truncate the distribution of food prices at both the upper and lower ends, stockholding is risky and there are no assurances that normal intra-seasonal price rises will occur due to the uncertainty over government action. Moreover, most of the silo capacity in countries such as Kenya, Malawi, and Zambia remain in public sector hands. The potential for selling parastatal storage facilities at concessionary prices as part of some future privatization plan acts as a deterrent to private investment in storage (Kopicki, 2005). While some analysts point to the large intra-seasonal price variability observed in countries such as Malawi and Zambia as indicators of weak private sector capacity and the limitations of market liberalization, it is not clear whether the market environment in most of the region provides a meaningful test of the private sector s capacity to engage in inter-seasonal storage. Many governments feel a strong need to continue intervening in food markets. It is widely viewed in the region that governments are responsible for ensuring peoples access to food (Bratton and Mattes, 2003). Food prices and availability are highly politicized issues in most of southern Africa. The transition to multi-party electoral processes over the past decade may have intensified the politicized nature of food prices in some cases as political parties compete to show how they will deliver benefits to the public in times of need (Sahley et al., 2005). This kind of environment, in which political struggles are played out in food marketing and trade policies, create major challenges for developing a market environment that provides adequate scope and incentive for private trade. Policy implications T.S. Jayne et al. / Food Policy 31 (2006) Two decades after market reform programs were initiated in eastern and southern Africa, maize marketing policies in many countries are fundamentally similar to the controlled marketing systems of their earlier histories. Many governments remain important players in their maize markets, both through their direct procurement and sale operations and through their use of trade policy instruments. Though the quantities they trade are smaller than during the controlled market era, marketing boards in these countries still exert a dominant presence in the maize markets, handling between 10% and 50% of marketed volumes. Some aspects of policy change have been implemented, primarily the legalization of private trading, and marketing board operations have been downsized, primarily due to fiscal constraints. Instead of purchasing the entire marketed surplus, as was the goal during the former control period, these boards now attempt to influence food prices through their operations in the market, ostensibly for food security and/or price stabilization purposes. Many countries in eastern and southern Africa have continued food price stabilization cum subsidy programs of various types, and hence an empirical assessment of these countries market performance since the 1990s reflects not the impacts of unfettered market forces but rather the mixed policy environment of legalized private trade within the context of continued strong government operations in food markets. However, key aspects of the maize marketing systems in the region have changed over time, and they have implications for the design of appropriate strategies to stabilize food markets. First, food production and expenditure patterns have, in most areas, become

11 338 T.S. Jayne et al. / Food Policy 31 (2006) more diversified. Second, white maize has become much more heavily traded on world markets. Third, maize prices in the region appear to be hitting import parity levels with increasing frequency, reflecting an emerging structural food deficit, especially in southern Africa (not including South Africa). Fourth, the marketed maize output from the small farm sector, in all countries for which nationwide household survey data is available, is produced by a relatively small proportion of households. Most rural households, and especially the poor, are buyers of staple food. These considerations mostly weaken the rationale for mean-raising food price stabilization policies. Although mean-neutral price stabilization could potentially have important benefits for low-income consumers, these benefits do not appear to have been successfully achieved by the existing mix of import tariffs, sporadic export bans, and marketing board operations to influence producer and consumer prices. Maize price instability in countries like Malawi and Zambia are extremely high despite the persistence of these government operations. While it is analytically difficult to estimate the counterfactual i.e., the level and instability of maize prices that would have prevailed over the past 15 years in the absence of these government operations there are strong indications that at least some aspects of government interventions in the market have exacerbated rather than reduced price instability for both producers and consumers. In some countries in the region, government policy has tended to raise maize market prices, generating distributional effects that were most likely anti-poor. While data are generally not available to estimate the full general equilibrium effects of government price policy, including their effects on the labor market, the information on small farm production and marketing patterns presented earlier in this paper suggest that mean-raising price policies are likely to have very concentrated benefits among relatively large farmers and would constitute a direct tax on consumers, many of whom are small farmers living in rural areas. A major challenge is how to move away from a situation where leaders feel they have to be seen as doing something directly and taking populist stances that may entrench the use of food or fertilizer handouts in response to instability-related food crises, but which do little to alleviate poverty or hunger in the longer run. A related major challenge is how to create constituencies for policies that promote market stability and food security, but which may not necessarily provide short-term patronage benefits. Given that governments are likely to continue intervening in food markets, there are several guidelines that might be followed to improve overall market performance: Follow clearly defined and transparent rules for triggering government intervention In countries where government involvement in food markets is seen as part of a transitional phase towards full market reform, predictable and transparent rules governing state involvement in the markets would reduce market risks and enable greater coordination between private and public decisions in the market. The phenomenon of subsidized government intervention in the market, or the threat of it, leading to private sector inaction, is one of the greatest problems plaguing the food marketing systems in the region. Effective coordination between the private and public sector would require greater consultation and transparency with regard to changes in parastatal purchase and sale prices, import and export decisions, tariff rate changes and stock release triggers. As stated by Øygard et al. (2003), unless some very predictable and credible management rules can be established for the reserve, private agents will be reluctant to hold stocks, out of a fear

12 that the reserve will be sold out at unpredictable times at subsidized prices, undercutting the value of their stored commodity. This approach does not imply that government need be impassive. The big problem is to avoid swamping the whole system with government stock releases or relief aid that is uncoordinated with what the private sector is doing. Ensure grain availability in local markets for small millers Small-scale millers play an important food security role in the region. As long as grain is available in local markets, a large proportion of urban consumers (and rural maize-buying farm households) buy grain from local retailers and pay a fee to mill the grain into meal (mugaiwa) at a local small mill. Mugaiwa is usually considerably cheaper than packaged maize meals because of lower milling costs and fewer services (e.g., no packaging). Mugaiwa also has a higher nutritional content than refined packaged meal. Urban consumer surveys in Zambia and Mozambique show that most of the urban poor rely primarily on small millers for their maize meal as long as it is available (Mwiinga et al., 2003; Jayne and Jones, 1997). Mwiinga et al. (2003) found than consumers eating mugaiwa could reduce their maize expenditures by 20% in urban Zambia compared to those purchasing the same amount of packaged roller or breakfast meal. However, during years of local production shortfalls, grain supplies in local markets dwindle later in the season, making it difficult for consumers to source grain for mugaiwa. Industrial mills linked to the formal marketing systems have traditionally been given permits to import maize, or been ensured preferential access to government-imported maize, resulting in a temporary increase in market share for industrial maize meal during drought years. In Zambia, this occurred in 2001/2002, following the government importation of some 150,000 tons of maize which was channeled exclusively to industrial mills. Lowincome consumers were forced to pay a higher price for maize meal than would have been the case if imported grain were released onto informal markets through small traders. The potential for consumers to avoid these unnecessary price increases for maize meal could be improved, first, by simplifying and streamlining customs procedures to encourage regional trade by small traders. These traders are the most likely marketing agents to continue supplying informal small retailers and millers during years of production shortfalls and thereby play a crucial role in ensuring poor consumers access to affordable food. Second, if governments choose to arrange imports themselves, they might consider tendering arrangements that allow small traders and millers to compete for the governmentimported grain. Public goods investments T.S. Jayne et al. / Food Policy 31 (2006) Many agricultural market failure problems in Africa reflect an under-provision of public goods investments to drive down the costs of marketing and contracting. Ameliorating market failure is likely to require increased commitment to investing in public goods (e.g., road, rail and port infrastructure, R&D, agricultural extension systems, market information systems) and institutional change to promote the functioning of market-oriented trading systems. Unfortunately the large share of government expenditures devoted to food and input marketing operations represents a high opportunity cost in terms of foregone public goods investments to promote the functioning of viable food markets.

13 340 T.S. Jayne et al. / Food Policy 31 (2006) Promote supply chain development for a wider set of crops Governments may promote more stable farm revenue and consumption patterns through supporting coordinated systems of input delivery, finance, and commodity marketing for a range of crops that offer higher returns to farming in the changing environment of Africa s rural areas. Such investments would represent a shift from the strategy of price stabilization and price support for a dominant staple grain to a portfolio approach that puts greater emphasis on value chain development for a range of promising commodities. This approach would shift the emphasis from direct approaches to stabilize and/or support the price for a dominant staple grain to one of minimizing the impact of food price instability by making the socio-political economy less vulnerable to the effects of food price instability. Governance and markets The issue of how to stabilize food markets and prices are transcended by issues of governance. A comprehensive approach for addressing the problems of food price instability and risk in low-income countries requires a framework that provides a clear understanding of the political economy and institutional context in which food marketing policy making occurs. A political economy approach is required to move beyond analysis that either attributes failure to implement reforms and encourage market-based risk transfer mechanisms to insufficient political will, or advocates greater state involvement in marketing and pricing to address market weaknesses without convincingly demonstrating how the failures of past state intervention can be overcome in the future. The strategic interactions between government and private sector and their potential effects on food security underscore the need for greater transparency and consultation between private and public market actors to achieve reasonable levels of price stability within the dual food marketing systems that characterize most of the region. Acknowledgements USAID/EGAT and Africa Bureau (through its support of the Food Security III Cooperative Agreement), USAID/Kenya (through its support of the Tegemeo Agricultural Monitoring and Policy Analysis Project), and the Rockefeller Foundation (through its support of FANRPAN and MSU s Southern Africa Regional Trade Project) are acknowledged for their role in financing the collection of household and trader survey data reported in this study. The authors appreciate comments received on an earlier version of this paper from Derek Byerlee, Robert Myers, James Shaffer, Anthony Mwanaumo, Henk Bremen, Bruce Gardner, and two anonymous reviewers. References Bratton, M., Mattes, R., Support for economic reform? Popular attitudes in southern Africa. World Development 31 (2), Dorward, A., Kydd, J., Morrisson, J., Urey, I., A policy agenda for pro-poor agricultural growth. World Development 32 (1), Fafchamps, M., Cash crop production, food price volatility, and rural market integration in the third world. American Journal of Agricultural Economics 74.1 (February),

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