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Gunter Schmidt, Agroprogress Kienbaum International GmbH Pfarrer-Byns-Straße 1, D-5300 Bonn-Endenich
1. Introduction
In explaining its objectives GASGA emphasizes that equally important to increased production is to ensure preservation of what is grown until such time as it is needed for ultimate local consumption or for export. Indeed, for the consumer it does not matter whether scarce supply is due to high losses or respective failures of production.
Preservation through adequate storage and/or transformation of the raw product is one of the main functions of marketing systems including all institutions or economic agents from production to consumption level. Consequently, the functioning of agricultural marketing systems plays an important role with regard to constrain post harvest losses. But marketing systems are even more important. They determine among others, to what extent government price policies become effective for farmers or, ultimately, what prices farmers get when selling their marketable surplus. Thus, marketing systems in conjunction with respective government policies determine the economic incentive to change production patterns and to increase production or not.
The creation of a respective favourable marketing environment is, therefore, one of the necessary conditions to achieve e.g. the objective of increasing basic foodgrain production. Unless farmers have confidence that prices will bear some minimum relation to cost, they will hesitate before incurring additional work or expenses to increase their output or raise its quality. This is particularly true in view of the fact, that a growing urban or non-agricultural population asks for an increased market production beyond subsistence requirements which under the condition of given land ressources can be achieved to a growing extent only by intensifying production with respective inputs of time and money.
Growthrates of foodgrain production in African countries during the last 2 1/2 decades in many cases ranked below population growthrates, in some case they were even negative. Consequently foodgrain import, requirements rose from about 4. Mio metric tons (1974) to more than 10. Mio. metric tons (1982/83). Apart from unfavourable climatic conditions, poor institutional and financial support to production activities (new technologies, input supply, extension, credit etc.) inadequate market or marketing conditions are seen as one of the major contributing factors to this development. The crucial issues in this context concern particularly foodgrain, price policies, market intervention by parastatals and food aid policies as well as its management.
2. Foodgrain Price Policies
For many years foodgrain price policies were biased towards the urban sector in many African countries. Because of the status of foodgrain as a wage good and the high share of basic food in the household budget of low-income consumers foodgrain prices were fixed at a low level in order to satisfy the urban clientele. This in turn was reflected in corresponding low farmgate prices which usually did not allow to cover production costs. Farmers in such a situation tend to confine themselves to subsistence production.
However, it should be noticed, that market prices or prices in parallel market often exceeded official producer prices due to the specific supply/demand situation. In such a situation official prices are of theoretic value only since the market situation provides enough incentives to farmers. Nevertheless, considering that production decisions are taken long time before the marketing season, not knowing the market prices in advance, the impact of announced official producer prices cannot be neglected.
Concomitantly with the consumer oriented low price policy governments usually persue the policy to keep foodgrain prices stable throughout the year and uniform in all regions irrespective of transport costs. Stable prices aim at protecting consumers from seasonal and erratic price fluctuations. Panterritorial prices are usually kept in order not to be blamed of being biased toward certain regions or tribes/ethnics respectively and/or to prevent undesired migrations.
These policies have major implications for the marketing system and production. If announced prices are effectively implemented, the incentive for the private sector to engage itself, in storage and/or interregional trade for balancing supply and demand between surplus and deficit regions is rather limited, if not absent. At the same time prices in surplus areas are unnecessarily depressed because surplus is not absorbed fast enough by the public marketing institutions. This again limits the incentives for producers in these regions. Similarly, prices in deficit regions are kept artificially low through subsidy on transfer costs, which again limits production in these areas (provided, prices in parallel markets do not reflect real transfer costs) and thus increases the necessity for interregional transfers and consequently marketing costs.
Another important issue with regard to foodgrain price policies is the relation of foodgrain prices to those of export crops and the relative prices of locally grown and important gratin.
Criticism is put forward that relative prices have favoured export crops. In this context, however, comparative advantages of export crop production should not be neglected.
More seriously seems to be the issue of import price policies favouring imported cereals (e.g. rice/wheat) at the expense of local grains. Since world market grain prices are artificially low at present, an liberalized import policy endangers domestic food production with dangerous long run effects.
3. Market Intervention through Public Marketing Organizations (Marketing Boards)
Effective implementation of foodgrain price policies requires a corresponding government institution able to carry out all necessary market regulating operations, e.g. procurement, storage, transport, sales and distribution etc.
For these purposes socalled parastatal grain marketing boards have been set up. Partly, in West Africa these boards are full government services without financial autonomy whereas in other cases they have a more or less autonomous status. In addition to its market regulating function, e.g. guaranteeing announced producer minimum support and stable consumer prices, they partly are charged with maintaining a food security reserve, managing food and and supply remote areas otherwise not supplied sufficiently. In the past, very often monopoly powers had been assigned to various marketing boards. However, recently most of the monopoly powers have been given up within the strategy to liberalize grain marketing operations.
Irrespective of their status, all marketing boards are faced with severe problems in fulffilling their market regulation functions and therefore are increasingly criticized. The main criticism is as follows:
ad a: Low effectiveness of market intervention
Price movements in (parallel) rural and urban markets have often shown large deviations between official and market prices, supporting obviously the above argument, at least at the first glance. However, the problem requires a more detailed analysis to come to a more differentiated conclusion. In general it can be said that the marketing boards themselves for the most part are not responsible for the failures, most problems accrue to unrealistic price structures decided by superior authorities, insufficient financial ressources given to the boards and unnecessary market control regulations (e.g. movement restrictions). There is, on the other hand, ample evidence that marketing boards provided with required ressources were able e.g. to establish floor prices for the benefit of farmers.
Consequently, marketing boards should not be considered as priori unable to regulate grain markets effectively.
ad b: Low operational efficiency
There is hardly any dissent that the private sector, ceteris paribus, is able to operate more efficiently than a parastatal organization with high overheads and a heavy administrative set-up. However, it should be taken into consideration, that grain marketing boards perform social, redistributive and productive functions which cannot necessarily be expected from private sector operations looking for the highest return on investment, especially in critical supply/demand situations. Possible social opportunity costs are usually not considered.
Apart from this, long term storage contributing to the high costs incurred by marketing boards, is up to now seldomly carried out by the private sector in African countries. The respective opportunity cost of the capital required is very high because of the capital constraints faced by the developing countries. The question is, whether private sector long term storage, requiring the same storage facilities, the same capital input etc. would be significantly less expensive than public long term storage under present African conditions.
ad c: Bufferstock export/import policy
Because of the high risks and costs of a bufferstock policy performed by most grain marketing boards cer tain donors as well as the World Bank favour an export/ import strategy to regulate the market. Such a strategy assumes that export possibilities exist m case of surplus situation and sufficient foreign exchange and/or food aid to cover foodgrain deficits. The present experience in West Africa, however, demonstrates that export possibilities for coarse grains grown and consumed in that region are rather limited since production follows more or less the same pattern leading to surplus in almost all countries at the same time. Moreover, exports at current world market prices would also require heavy subsidies. Therefore, exports do not seem to be a viabal alternative for regulating the internal market in all situations.
On the other hand, imports and food aid may well help tO stabilize consumer prices at a desired level in times of scarce internal supply. Moreover, restricting imports in times of abundant internal supply would help to ease the situation. Moreover, restricting imports together with a respective price policy may also help to maintain domestic consumption habits in favour of locally grown and consumed coarse grains or may help to promote its consumption at the cost of imported grains such as rice and wheat. To increase the convenience of food preparation through respective processing seems to be a very important factor in this context. For examples it may be referred to millet flour and "maize rice" in Senegal.
ad d: Detrimental effects of market intervention
As already indicated above with regard to the price policy, price stabilization and panterritorial pricing may reduce the incentive for increased production and optimal allocation of ressources. The degree to which this occurs depends, however, largely on the price margins fixed for or induced by market interventions. The bigger the margin between public buying and selling prices the higher will be the incentive for private sector participation in grain marketing and the lower the market distortions. On the other hand the smaller the public margin and the more control on private marketing the greater will be the market distortion with detrimental effects on production.
Effects of market intervention may also not be consistent with the redistributive objectives. This is especially the case if low income consumers do not have sufficient access to official sourses at guaranteed prices (e.g. Mali) but have to supply themselves at higher prices in parallel market. Similiarly, negative income distribution effects occur at producer level, if especially the bigger farmers profit more from market intervention than smallholders.
Summarizing, it can be concluded that criticism of grain marketing boards does not seem to be justified in general terms. Considering that the private sector does not necessarily perform the regulating function assigned to boards the latter may well contribute or even necessary to create the marketing environment required for increased grain production. However, that does not mean that marketing boards need to replace the private sector.
There is ample evidence that the private marketing sector is not generally exploitative or ineffective as often alleged and which would justify to exclude traders from grain marketing. The question therefore is not to replace them or not, but, to regulate their operations. In a competitive environment and with sufficient ressources there is no need for governments to intervene extensively and directly upto the farm level which for a parastatal, as pointed out above, is a very costly exercise. Therefore, each situation has to be carefully examined, as to what extent marketing boards need to intervene in the market by direct transactions or, respectively, to what extent the performance of marketing transactions can be left to the private sector.
Whenever possible, government should refrain from direct involvement in marketing transaction in order to reduce marketing costs and save scarce ressources. The answer in this respect depends largely on the situation with regard to the physical and marketing infrastructure, market structure (local, monopolies, collusion etc.), market transparency among farmers and traders, degree of farmers organisation, access of farmers and traders to credit etc. These factors largely determine the degree of competition and absorbing capacity of the private marketing subsystem as well as the "countervailing power" or dependence of farmers, which ultimately determines the price they get for their marketed surplus.
4. Food Aid Policies and Managament
Food aid, for long time has been criticized for leading to severe market distortions, depressing local grain prices changing consumption habits etc. to the detriment of local production. This criticism refers mainly to a particular form of food aid and its management, i.e. bulk supply which is distributed free of charge or heavily subsidized irrespective of local specific market situation. This practice was quite common in the past. Nowadays the major donors try to avoid these effects. In principle this is possible if certain conditions are met, e.g.if
A lot of progress has been made in this respect. However, there are still problems which are difficult to control. The major ones are as follows:
5. Summary and Conclusions
In the previous paragraphs an attempt was made to review the crucial issues which demonstrate the relevance of marketing conditions for improved foodgrain production and the implications for the post harvest system. It was pointed out that a price policy consistent with the objective of increasing food production is crucial to this end but becomes only effective if implemented effectively. The latter needs a very careful design of market intervention and coordination with import/export and food aid policies. Otherwise market destortions may lead exactly to opposite results as stated in the objectives.
Market intervention and in consequence the implementation of price policies can only be effective if prices are set right and the physical and financial means as well as the required personnel is provided for. Since market interventions to support farm and stabilize consumer prices are costly (storage, export subsidies etc.) and financial ressources are limited the capacity and skills of the private sector to perform marketing functions (storage, interregional trade/transport etc.) at lower costs should be utilized as far as possible. technical, financial, institutional as well as infrastructural assistance to increase this capacity at all levels (including farm level) contributes to the aim of effective and efficient market intervention or regulation respectively.
The extent to which the private sector participates in marketing depends, apart from respective regulations and controls, again largely on the price policies and its implementation. Narrow subsidized margins between official producer and consumer prices tend to exclude private participants increasing the burden for the public sector with possible detrimental effects for farmers and consumers and vice versa. With widening the margin within a policy of increasingly liberalizing grain marketing as initiated in many countries under the assistance of the World Bank and various donors the demands on the private sector with regard to post harvest management is growing. This, obviously, has also important implications for GASGA and its activities.