Enhancing food supply response
The dismal state of agriculture in many developing countries explains why they are unable to reap immediate benefits from higher prices and ensure their peoples’ food security in a time of high prices. The World Development Report 2008 (World Bank 2007) shows the growing consensus that support for agriculture needs to be revived, after decades of damaging neglect. Governments and communities need to build the institutions and physical infrastructure they need for a productive agricultural sector that is ready for the challenges that lie ahead. Eastern and Southern Africa (ESA) governments need to dedicate to agriculture a level of attention and funding that is commensurate with the importance of the sector for their development and food security in line with the Maputo declaration.
Lags are expected in the response in food supply to the current crisis in that it will take some time to produce results and these efforts must receive sustained levels of support. Increase in the supply of food will require the development and use of new crop technologies. This presents challenges since there is little unused high potential land for expansion and input prices such as those of fertilizer are increasing. Further investments are required to revamp institutions, e.g. research to generate technologies, and extension systems to advise farmers and those charged with availing inputs such as fertilizers, in order to boost the production of food.
1. Remove price controls and export bans
Commodity price controls and export bans may help to contain pressures on domestic prices, but they also serve as a disincentive to farmers. In response to low prices for their products and high input prices farmers reduce production. Export restrictions exacerbate the price spiral and instability in regional markets, especially when they are implemented in an ad hoc and uncoordinated manner by different countries. Increased volatility may in turn worsen food security in neighbouring countries.
2. Make agricultural inputs affordable
Provision of input subsidies has been criticized on the basis of arguments which include costs and sustainability, ineffective targeting resulting in elite capture, and market disruptions resulting into poor private input market development. They are criticized when they are seen to compete with other needy sectors such as infrastructure and market development. However, ‘smart’ subsidies, which make use of local delivery without undermining local private sector enterprise, are a very strategic investment for African governments to make. They are smart if they are targeted and time bound. Fertilizer/seed subsidies could be provided to poor and vulnerable households in the form of vouchers. If the vouchers are specified as redeemable from certified rural stockists, then such ‘smart fertilizer/seed subsidies’ could be used to further develop, rather than undermine, rural agricultural input markets that serve the poor. Input subsidies can also be provided as in-kind deliveries, cash payments, reduced market prices, reduced import costs, transport subsidies or credit guarantees to participating institutions.
Other options are to use cash transfers, but rather than cash, use voucher systems for fertilizer/seed such as those used in Kenya, Malawi and Ethiopia; and use in-kind input credit systems (pilots involving bank guarantees in Kenya, the millennium village project, Sasakawa Global 2000 models).
Cost considerations are critical and may provide evidence contrary to expectations. For example, subsidizing maize fertilizer in Kenya would seem preferable to importing maize for food consumption in 2008. Maize fertilizer prices have increased by more than 50% from their 2007 levels of Kenya shillings (KES) 33,000 ( US$ 1 = KES 66) per tonne for planting fertilizer and KES 29,000 per tonne for topdressing fertilizer: the prices of planting and topdressing fertilizer currently stand at KES 80,000 and KES 50,000 per tonne respectively. Given that Kenya uses about 140,000 tonnes of planting fertilizer and 91,618 tonnes of topdressing fertilizer to produce maize, a subsidy provided to restore fertilizer prices to their 2007 levels would cost about KES 8.5 billion. The cost of this subsidy compares favourably with the cost (KES 12.228 billion) of importing 6 million bags of maize to replenish strategic reserves. The option also results in multiplier/spillover effects that the Malawi experience can attest to. Individual countries decide if they can finance the subsidies and/or seek bilateral and multilateral donor partnerships. The Malawi pilot fertilizer subsidy scheme was supported by the Department for International Development (DFID) and World Bank funding
These subsidies will need criteria to define target groups composed of those who need them the most, for example by crop as in the case of Malawi, geographic area or wealth level Governments should consider the transactional costs involved in targeting. From the Ethiopian example, three pilot options were discarded due to high administrative costs. In Malawi they have been successful in the last two seasons. In cases where the costs are too high, a blanket subsidy may be more feasible.
3. Reduce domestic taxes on fuel
Transport costs are generally the largest single component of price differences between surplus and deficit areas. As transport costs decline, the size of the market expands for any particular farmer and demand becomes more elastic. While poor transport infrastructure connecting deficit and surplus areas is largely to blame for the high transportation costs, the costs can be lowered substantially by reducing tax on fuel. Although agricultural inputs in most countries are not subject to import duty, they attract high costs due to addition of VAT in transportation. For example, a 50% reduction in taxes, which have been estimated to constitute about 30% of fuel prices in Kenya, could dent transport costs significantly.
4. Build on best-bet technologies and pilot innovative risk management strategies
Recent efforts to produce a list of most promising best bet technologies that could be used in response to the food crisis should be enhanced to test and upscale the technologies to boost crop yields in the region. To ensure sustained adoption of the new technologies it is imperative that the environment in which farmers operate is made less risky. Innovative risk management strategies such as the warehouse receipt system and weather-indexed insurance systems should be piloted to determine their suitability and efficacy.
5. Enhance input distribution systems
Developing networks of rural stockists (agro-dealers) is critical for accelerating smallholders’ access to quality agricultural inputs in ESA. Support through the Rockefeller Foundation to projects in Kenya, Malawi and Uganda provides examples of successes in this area. The projects are being implemented by the Agricultural Market Development Trust (AGMARK) for work in Kenya; Appropriate Technology (AT)-Uganda, for work in Uganda; and Citizens Network for Foreign Affairs/Rural Agriculture Input Supply Expansion (CNFA/RAISE) project in Malawi.
Stockists receive training to develop their technical, product and business management skills. On completion of the training, the stockists become ‘certified agro-dealers’ and are linked, using credit guarantees, to major agricultural input supply firms who offer them stocks for 30–60 days credit period. The credit guarantee covers 50% of the risk of default. The choice of agro-dealers, to whom credit guarantees are provided, is made independently by the companies based on their own selection criteria. Third, to improve affordability of inputs for farmers, the agro-dealers pack and sell seeds and fertilizers in small packages, ranging from 1 kg for seeds, to between 2 kg and 10 kg packs for fertilizers. Fourth, to help achieve economies of scale in sourcing and transporting inputs, the agro-dealers form purchasing groups at the district levels with group members providing joint collateral to guarantee the supply of inputs from the supply firms. Furthermore, the agro-dealers are organized into national level agro-dealer associations which allow them to better negotiate for lower prices and better credit financing arrangements with the agricultural input supply companies, while it also helps them to influence government policies on imports, pricing, distribution and marketing of agricultural inputs. As the numbers of agro-dealers have expanded in each of these countries, the flow of farm inputs, particularly fertilizers and improved seeds, into rural areas have increased significantly.
This type of initiative could be up scaled throughout the region. Public investment and support is needed to facilitate private sector participation in fertilizer supply. In Kenya, this policy approach to fertilizer promotion has resulted in impressive private sector response and an increase of 35% in fertilizer use per hectare cultivated over the past decade. This approach works best where there are no government fertilizer subsidy programmes in competition against private fertilizer companies.
6. Public investment in water management, e.g. irrigation
The water challenge is huge with many rural populations living in areas characterized by frequent moisture stress that limits agricultural production and many countries are experiencing serious and worsening water scarcity (World Bank 2008). The IPCC predicts that by 2020, between 75 million and 250 million people in Africa will be exposed to increased water stress. Gross wastage in existing systems, inappropriate cultivation encouraged by poor water policy, conflicts between urban and rural users are contributing to rising water costs and lower productivity for agriculture.
Given that most of ESA agriculture is rainfed and there are growing concerns of variable rainfall with climate change, investments in improved water use and management will be required. This calls for improved access to agricultural water by securing rights, storage and delivery infrastructure and increasing its productivity through integrated systems and high value production systems. Other options include upgrading of rainfed systems and reforms in water management policies and institutions .
Excerpted from Responding to the food price crisis in Eastern and Southern Africa: Policy Options for National and Regional Action Draft by the Association for Strengthening Agricultural Research in Eastern and Central Africa (ASARECA)
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