REVIEW OF LITERATURE ON SELECTED POLICIES (Secondary notE) Mulungu & Ng'ombe Consultants REVIEW OF LITERATURE ON SELECTED POLICIES (Secondary notE) Mulungu and Ng’ombe 2018/11/23

Competition Reforms Competition policy can have a wide meaning attached to it It can formally be defined as any policy that aims at ensuring that competition in the marketplace is not restricted in a way that is detrimental to society For the success of the economy, competition and consumer protection policies are pre-requisites with each being a compliment to the other and in tandem enhancing economic efficiency, offering consumers more choice and quality Mulungu & Ng'ombe Consultants 2018/11/23

Competition Reforms “Competition in agriculture might be of heightened concern because the sector produces essential products purchased by all consumers, including the poor who are disproportionately affected by anticompetitive activities” (AgCLIR, 2010) The effects of competition enhancing reforms are more likely to have major effects, considering 50 percent of the rural farmers in Zambia are net buyers of maize Mulungu & Ng'ombe Consultants 2018/11/23

Competition Reforms Three reforms were chosen: Farmer Input Support Programme Food Reserve Act Removal of subsidies on millers Mulungu & Ng'ombe Consultants 2018/11/23

Competition Reforms To these reforms, the following aspects that impact on welfare are being looked at; Price Productivity Access Quality Cost and Growth Hypotheses are drawn around each of these aspects Mulungu & Ng'ombe Consultants 2018/11/23

FRA Act- Summary of Studies FRA prices are not very different from the prices that are simulated using historical data- except for the first year of operation by FRA- 1996/97 Mulungu & Ng'ombe Consultants 2018/11/23

FRA Act- Summary of Studies In some instances, the FRA prices raised market prices e.g. between July 2003 and December 2008, the FRA’s activities were estimated to have raised mean maize market prices by 19% in Choma and 17% in Lusaka (Mason and Myers, 2011) Mulungu & Ng'ombe Consultants 2018/11/23

FRA Act- Summary of Studies Between July 2003 and December 2008, the FRA’s activities were estimated to have raised mean maize market prices by 19% in Choma and 17% in Lusaka (Mason and Myers, 2011) The increase in price is beneficial to the net maize sellers, which only comprise about 28 percent of all farming households – which further implies distributional effects Mulungu & Ng'ombe Consultants 2018/11/23

FRA Act- Summary of Studies Therefore, to the extent that they raise average maize market prices in Zambia, the FRA’s policies are regressive: higher maize prices harm urban consumers and a large proportion of rural households, and help large-scale farmers and a small number of relatively better off smallholders Mulungu & Ng'ombe Consultants 2018/11/23

FRA Act- Summary of Studies FRA maize buying activity had a positive effect on wholesale price variance- on average it reduced the variance as measured by the standard deviation by 13.5 percent Studies have indicated that the benefits of price stabilization accrue more to the better off farmers than to the poor farmers. Mulungu & Ng'ombe Consultants 2018/11/23

FRA Act- Summary of Studies Chapoto and Jayne (2009) in their study on the effect of FRA marketing and floor pricing on price unpredictability show that FRA purchases appear to have no significant impact on next month’s market prices Government actions influence the incentives for private players to store maize and sell when the price has gone up in the dry hunger season Mulungu & Ng'ombe Consultants 2018/11/23

FRA Act- Summary of Studies Even though the maize floor pricing by FRA is meant to be a poverty reduction measure and ensure small scale farmers have access to market at good prices, the percentage of small scale farmers that sell maize to FRA is so small and it is usually by male headed better-off households. For example in 2003/04, only 1 percent of the smallholder farmers sold maize to FRA while in 2007/08 this figure increased to 10 percent Mulungu & Ng'ombe Consultants 2018/11/23

Subsidy for Inputs (FISP) A study by Xu et al (2009) in Zambia showed that in areas with low private sector activities, subsidy programs tend to demonstrate the desired effect on private sector development The study found that a one-unit increase in subsidy distribution will increase total fertilizer use by more than 1 kg/hh. In other words, the private sector will be crowded in by either increases in effective demand or reduction in average fixed costs Mulungu & Ng'ombe Consultants 2018/11/23

Subsidy for Inputs (FISP) However, in most areas the private sector is crowded out Ricker-Gilbert et al. (2011) estimates that between 2003 and 2007 in Malawi, one kilogram of subsidized fertilizer crowded out 0.22 kg of commercial fertilizer, on average Crowding out is smaller for the poorest quintile of the sample, with 0.18 kg displaced, compared to the wealthiest quintile, with 0.31 kg displaced, indicating Mulungu & Ng'ombe Consultants 2018/11/23

Subsidy for Inputs (FISP) When leakage is accounted for in the public distribution channel, the crowding out effect increases On productivity, in malawi fertilizer subsidy is linked to increase in yields of about 600 kg/ha from 1,440 to 2,040 kg/ha for hybrid maize, and from 1,120 to 1,680 kg/ha for local maize from 2006 to 2009 Mulungu & Ng'ombe Consultants 2018/11/23

Subsidy for Inputs (FISP) Ricker-Gilbert and Jayne (2011) find that an additional kilogram of subsidized fertilizer in the current year boosts maize production on average by 1.82 kg in that year Chibwana et al (2011) found that fertilizer subsidy made farmers allocate more of their land to maize crop at the expense of other crops raising questions about sustainability of yields in the long term and nutrition Mulungu & Ng'ombe Consultants 2018/11/23

Removal of Subsidies on Millers The subsidy by government to millers through selling maize grain at a subsidized price and transporting it to the millers depots was accrued by the millers and not consumers The mill-to-retail marketing margins had increased significantly from the level of roughly 900 kwacha per kg by August to 1,400 kwacha per kg after the subsidy while the retail prices had remained constant (Kuteya and Jayne, 2012) Mulungu & Ng'ombe Consultants 2018/11/23

Subsidies to Millers Source: Kuteya and Jayne, 2012 Mulungu & Ng'ombe Consultants 2018/11/23

Removal of Subsidies on Millers Very little of the treasury costs incurred in providing FRA grain to millers at below-market prices benefited the urban consumers who are the majority consumers of the mealie-meal from the millers Subsidy was applied only to a selected few millers and mostly the informal millers were excluded hence it did not encourage competition and it would negatively affect the future competitiveness and market structure of Zambia’s maize milling industry Mulungu & Ng'ombe Consultants 2018/11/23

Removal of Subsidies on Millers Such activities would over the time, likely to entrench the market share of the selected millers having access to subsidized maize supplies, force non-selected millers out of business, and adversely affect the degree of competitiveness within the milling industry Government continued with this subsidy until May 2013 Mulungu & Ng'ombe Consultants 2018/11/23

Removal of Subsidies on Millers A study by IAPRI in 2014 finds that the increase in mealie-meal prices in December 2013 falls within the historical bounds FRA’s subsidized wholesale maize grain, wholesale maize grain without FRA subsidies and retail breakfast meal prices were all in their normal ranges and could be predicted with small and non- significant margin error using the historical data Mulungu & Ng'ombe Consultants 2018/11/23

Removal of Subsidies on Millers This means that despite the subsidy being removed in May, by December 2013, the effect on price had not yet been witnessed but that the increase in prices was the normal seasonal increase Seasonal price increases in 2013 were within their normal historical bounds in Zambia. The study concludes that mealie meal real prices in December were actually lower than in several other years since 2000 Mulungu & Ng'ombe Consultants 2018/11/23

Primary Surveys Primary surveys role are to get the consumer and producer perceptions as well as interviews with key informants which data will help to fill in the gaps that are not answered by literature and secondary data So far some preliminary findings have been made Mulungu & Ng'ombe Consultants 2018/11/23

Preliminary findings- Consumers For all the areas where questionnaires were administered a 25kg bag of mealie meal costs between K73 – K75 Consumers indicated that the price of mealie meal has increased significantly since 2012 The quality of mealie meal has not changed over the years but availability has improved Mulungu & Ng'ombe Consultants 2018/11/23

Preliminary findings- Producers Most of the small scale farmers in Chipata do not have a number of options in deciding who they can sell their produce to. And those who have options have they state the number of options to more than 2 but less than 5 The farmers sell their produce to government agents mostly because the payment scheme is good, there is assurance of payment and it is a readily available market, followed by local open market and local traders Mulungu & Ng'ombe Consultants 2018/11/23

Preliminary findings- Producers The government determined price is used as a benchmark in selling to private sector buyers The farmers are dissatisfied with the price set by government The millers indicated that competition is quiet high in the market and one needs a lot of aggressive marketing to sell Mulungu & Ng'ombe Consultants 2018/11/23

Mulungu & Ng'ombe Consultants THANK YOU 2018/11/23