1. Indaba Agricultural Policy Research Institute I NDABA A GRICULTURAL P OLICY R ESEARCH I NSTITUTE Auckland Kuteya and Nicholas Sitko Presented at a policy dialogue on “Food Security Information: Issues, Gaps and Opportunities” Lusaka August 14, 2014 June 19 th, 2014 Domestic maize market development and implications for Zambia’s national food security

2. Indaba Agricultural Policy Research Institute Outline  Motivation  Changes in investments in the maize market  Investments implications on maize production and rural poverty  Investments implications on food price  Conclusions  Proposed ways forward 1

3. Indaba Agricultural Policy Research Institute Motivation  Maize in Zambia is synonymous to national food security 2

4. Indaba Agricultural Policy Research Institute Motivation  Maize is the dominant staple food and nearly all Zambians consume nshima daily  Maize production is perceived to bring economic development and poverty reduction  More than 80% of smallholder households grow maize  Maize self-sufficiency is equated to national food security  Since 2009, maize production has been above national consumption requirement every year 3

5. Indaba Agricultural Policy Research Institute Changes in investments in the maize market 4

6. Indaba Agricultural Policy Research Institute Share of Agricultural Budget to FISP and FRA 5 Source: MAL and MoFNP actual expenditure

7. Indaba Agricultural Policy Research Institute Frequent subsidies to commercial millers, 2011-2013  Sept 2011 – Aug 2012  Government subsidizes maize to millers at K20 per 50kg bag  Dec 2012 –Mar 2013  FRA subsidizes maize to millers at K60 per 50kg bag  December 2013  FRA offloads 50,000 metric tonnes of maize on the market to stabilize rising prices of mealie-meal  FRA sells maize to milling companies not along line of rail at K1,000 per MT 6

8. Indaba Agricultural Policy Research Institute Increased private sector investments  Private sector investments in Zambia’s maize market has been motivated by market liberalization and volatile global maize prices  In 2012, Cargill and NWK Zambia began providing maize inputs and output market to farmers in addition to cotton  In 2013, APG Group of Companies began construction of its first massive milling plant in Solwezi  Others include Seaboard Corporation and Export Trading Group; all providing maize output market 7

9. Indaba Agricultural Policy Research Institute Implications on maize production and rural poverty 8

10. Indaba Agricultural Policy Research Institute Upward trends in maize production 9 Source: CFS various years

11. Indaba Agricultural Policy Research Institute Consistent maize surplus production but low formal exports 10 Production year Production + carryover stocks (1000 MT) Total Domestic Requirement (1000 MT) Surplus (1000 MT) Formal Exports (1000 MT) ABC=A-BD 2008/091,9501,700250173 2009/103,0942,0001,0943 2010/113,4502,50095030 2011/123,5502,5001,050358 2012/132,9882,50048873 2013/14 3,948 2,795 1,153-- Total4,985 Source: MAL/CFS and COMtrade

12. Indaba Agricultural Policy Research Institute Persistently low yields 11 Sources: MAL/CSO Crop Forecast Surveys, 2006/07 - 2013/14

13. Indaba Agricultural Policy Research Institute 12 High rural poverty levels Source: GRZ’s Central Statistical Office and RALS 2012

14. Indaba Agricultural Policy Research Institute Land size and poverty in Zambia 13 Total area cultivated Number of farms % of farms Poverty Rate (%) % of farmers receiving FISP fertilizer kg of FISP fertilizer received per farm household (A)(B)(C)(D)(E) 0-0.99 ha596,33439.6811424.1 1-1.99 ha499,02633.1813169.3 2-4.99 ha354,11623.56645139.7 5-9.99 ha49,4103.33859309.7 10-20 ha6,9990.51553345.6 Total1,505,885100762977.1 Source: RALS 2012

15. Indaba Agricultural Policy Research Institute Relatively well off HHs obtain 55% FISP fertilizer 14 55% of FISP fertilizer Source: RALS 2012

16. Indaba Agricultural Policy Research Institute Better off HHs account for majority of maize sold to FRA, 2011 15 These account for 78% of maize sold to FRA Source: RALS 2012

17. Indaba Agricultural Policy Research Institute Share of marketed surplus maize by farm size 1990/91 and 2012/13 16 Total cultivated land 1990/91 PHS2012/13 CFS % of smallholder population Share of total maize harvest Share of marketed maize surplus % of smallholder population Share of total maize harvest Share of marketed maize surplus 0-0.99 ha43.0 42.146.120.913.6 1-1.99 ha28.527.827.228.726.323.6 2-4.99 ha21.122.223.621.332.834.0 5-9.99 ha6.05.96.03.313.118.5 10-20 ha1.41.1 0.66.810.4 Source: PHS 1990/91 and CFS 2012/13

18. Indaba Agricultural Policy Research Institute Highly concentrated patterns of maize surplus production 17 0.201.22.2927,971 (61.6%) Households not selling maize 1.71.32.03.4499,530 (33.2%) Rest of maize sellers 8.68.13.04.378,384 (5.2%) Top 50% of maize sales Gross rev., crop sales (million kw) Gross rev., maize sales (million kw) Ha farmed (ha) Farm size (ha) N= Source: CSO Crop Forecast Survey, 2011

19. Indaba Agricultural Policy Research Institute Putting it together  Government expenditure through FRA/FISP benefiting larger and relatively already well off HHs  HHs cultivating 2ha and above are more likely to engage with commercial private markets and FRA  This situation has worsened over time  GRZ spending through FISP/FRA has little impact on yields or poverty reduction  FRA/FISP come as an opportunity cost to key agric growth drivers (irrigation, rural electrification, R&D, extension, etc.) 18

20. Indaba Agricultural Policy Research Institute Implications on food price 19

21. Indaba Agricultural Policy Research Institute Effects of restrictions and uncertainty over trade 20 Source: FAO GIEWS food price data analysis tool, AMIC Farmers would have obtained higher prices if exports occurred

22. Indaba Agricultural Policy Research Institute 21 Narrowing wholesale-to-retail market margins over time - Lusaka K2 K1 Source: AMIC and IAPRI

23. Indaba Agricultural Policy Research Institute Declining market margins Declining market margins  In 2000 the average mill-to-retail margin in Lusaka was K2 and by 2013 it dropped to K1 per kg  Narrowing margins imply maize marketing is becoming competitive and efficient – this is good for urban consumers  Between 2000 and 2010 there were significant investments in maize milling as large mills increased roughly from 25 to 35 in the country  Widening margins at any stage of the value chain would suggest declining competition as this was the case during FRA subsidies to large millers between 2011 and 2013 22

24. Indaba Agricultural Policy Research Institute Conclusions  Current maize production meets local requirements and we have witnessed increasing surpluses over time  However, formal exports remain low and markets have become more concentrated  Majority of smallholder HHs are land constrained  Maize yields have remained stagnant, ~2MT/ha  Government spending on FISP and FRA have little effect on rural poverty reduction for HHs with <2ha  Maize prices sometimes trade outside of the bounds set by import and export parity prices due to trade restrictions and market interventions 23

25. Indaba Agricultural Policy Research Institute Proposed ways forward  Redirect investments in technology (research, extension), rural electrification, irrigation, markets and roads which may be more productive according to empirical evidence  Government should create conducive environment for private sector participation in agriculture through predictable trade policy 24

26. Indaba Agricultural Policy Research Institute 25 Thank You